3C - Estate and Gift Taxation

What amount of a decedent's taxable estate is effectively tax-free in 2018 if the maximum applicable (unified) estate and gift tax exemption is taken?

$11,180,000

The following items may be deducted from the gross estate:

(1) funeral expenses; (2) expenses incurred in the administration of the decedent's estate; (3) debts of the decedent; (4) casualty and theft losses occurring during the period of administration; (5) charitable bequests (these must have been specified by the decedent); (6) the value of all property left outright to the surviving spouse (marital deduction) but not property with a terminable interest; and (7) state death taxes.

In order for an unlimited marital deduction to apply to the estate tax, all of the following must apply:

1. The decedent must be married and survived by their spouse. 2. The spouse must be a U.S. citizen. 3. The property must be included in the decedent's gross estate and pass to the surviving spouse. 4. The spouse's interest in the property must not be a terminable interest.

Within how many months after the date of a decedent's death is the federal estate tax return (Form 706) due if no extension of time for filing is granted?

9 months

Donee beneficiary:

A third party to a contract who benefits by the performance of one or more of the principal parties to the contract

Generally, an estate is liable for which debts owed by the decedent at the time of death?

All of the decedent's debts

a gift of present interest.

An unrestricted right to the immediate use of the income from property

The federal gift tax does not apply to the following:

Medical care payments on another's behalf paid directly to medical care provider Tuition payments made to an educational organization (for example, a university) Transfers to political organizations

Incidental beneficiary:

One who benefits from the performance of a contract merely incidentally—one not intended to be a contract beneficiary

Beneficiary of a will:

Receives property left by a will

Creditor beneficiary:

Receives property left by a will in payment of a debt

Income beneficiary:

Receives the income from trust assets

Principal beneficiary:

Receives the trust assets (the corpus, principal) after the interests of the income beneficiary expire or terminate—also called the remainder beneficiary or remainderman

Blake transferred a corporate bond with a face amount and fair market value of $20,000 to a trust for the benefit of his 16-year-old child. Annual interest on this bond is $2,000, which is to be accumulated in the trust and distributed to the child on reaching the age of 21. The bond is then to be distributed to the donor or her successor-in-interest in liquidation of the trust. Present value of the total interest to be received by the child is $8,710. What is the amount of the gift that is excludable from taxable gifts? Question #100973

The annual exclusion only applies to a "gift of a present interest." A present interest gift is an unrestricted right to the immediate use, possession, or enjoyment of the property or of the related income. There is an exception to the present interest rule. A transfer for the benefit of a person who has not attained age 21 is considered a gift of a present interest if all of the following conditions are satisfied: Both the property and its income may be spent by or for the benefit of the minor before she or he reaches 21 years old. Any portion of the property or its income not expended for the minor before reaching 21 years of age must go to the minor at 21 years of age. If the minor dies before reaching 21 years of age, the property and its income must be payable to the minor's estate or as the minor directs (under a "general power of appointment"). (IRC Section 2503(c)) Since this question states that only the interest income is to go to the minor (not the corporate bond itself), it does not qualify for the annual exclusions. None of the gift ($8,170) is excludable from taxable gifts.

Cobb created a $500,000 trust that provided his mother with an income interest for her life and the remainder interest to go to his sister at the death of his mother. Cobb expressly retained the power to revoke both the income interest and the remainder interest at any time. The income interest at the trust's creation:

The income interest would not be a completed gift at the trust's creation because the grantor retained the power to revoke the trust. To be a completed gift, the grantor must relinquish all dominion and control over the transferred property. Generally, if any right is retained to revoke or change the disposition of the property the gift is not complete. A transfer in trust can be a complete gift if it is irrevocable and the grantor does not retain any powers over the trust. A gift that is not complete is not subject to gift tax. Regulation Section 25.2511-2(b)

disadvantage of a revocable trust

The trust is included in the gross estate of the grantor.

Under which of the following circumstances is trust property with an independent trustee includible in the grantor's gross estate?

The trust is revocable. When a grantor makes a gift and sets up a trust that is revocable, the grantor has maintained too much power and control over the assets. Such a revocable trust must be included in the grantor's gross estate when the grantor dies.

The credit that may be offset against the gross estate tax to determine the net estate tax of a U.S. citizen

The unified credit is a specific credit allowed against the estate tax and will encompass prior gifts as well.

Remainder Interest - beneficiary will not receive enjoyment of the gift until a future time when the beneficiary of the income interest reaches age 30 is a

a gift of a future interest.

The unified credit is defined as

as a credit that allows donors and decedents to transfer a limited amount of property without being subject to the gift or estate tax.

The generation-skipping transfer tax is imposed:

as a separate tax in addition to the gift and estate taxes.

The federal estate tax may be reduced by

both a credit for foreign death taxes and/or a credit for tax on prior transfers.

The gross estate includes all property in which the decedent had an interest (including real property outside the United States). It also includes:

certain transfers made during the decedent's life without an adequate and full consideration in money or money's worth, annuities, the includible portion of joint estates with right of survivorship, the includible portion of tenancies by the entirety, and property over which the decedent possessed a general power of appointment.

The federal estate tax may be reduced by a credit for:

foreign death taxes. tax on prior transfers.

income interest

is a gift of present interest.

Any transfer of assets after the marriage of Jim and Nina is considered a

marital deduction. The gift of a ring for the engagement happened prior to the marriage and thus does not qualify.

The generation-skipping tax (GST) is imposed

on lifetime and testamentary transfers to "skip persons." A skip person is anyone who is two generations or more below the transferor (IRC Section 2613). It is a separate taxing system, so it is imposed in addition to gift or estate taxes. It is imposed at the highest gift and estate tax rate (IRC Section 2641).

The cash transfer is a

present interest because the recipient has immediate control and enjoyment of the gift.

To be a completed gift, the grantor must

relinquish all dominion and control over the transferred property. Generally, if any right is retained to revoke or change the disposition of the property the gift is not complete.

Parents lend $2,000,000 to their child to start a business. The loan is interest-free and is payable on demand. The imputed interest is subject to:

the gift tax each year the loan is outstanding.