chapter 26 federal gift and estate tax. introduction n growth area, statutory n excise taxes on...
TRANSCRIPT
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Chapter 26
Federal Gift and Estate Tax
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Introduction
Growth area, Statutory Excise taxes on transfers, estate tax v. inheritance
tax J/T, T/E, T/C, CP, JTCP persons subject to federal E&G: U.S. citizens (and
residents) - world-wide NRA - prop w/i US, except intan pers prop gifted
(e.g., stk) - est tax: sep sub chap + treaties
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TRA 1976 - unified rates, unified credit
Formulas - Gift and Estate Tax
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Gift Tax
Current taxable gifts + prior taxable gifts = tax base;
tax base x rates - credits (UTC, gift tax deemed paid) = tax due
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Reqs of Gift
<full & adequate consideration; incomplete - e.g., revocable trust; excluded - to political org, to educational
institution for tuition, for medical care; at death - life insurance – not gift, but
testamentary disposition
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JT Bank Acct, Stk, Bond
inter vivos gift if draw during life
not gift at death
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Annual exclusion: – present interest, – 2503(c) minors
trust – inflation adjust
deductions – charitable – marital
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add ALL prior gifts (cumulative) credit for tax paid or deemed paid (deemed
paid - use current rates) gift splitting Form 709 due date who must file (>annual exclusion to donee,
must file to split gifts)
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Estate Tax
GE - deducs = TE + post 76 (ONLY) gifts = tax base
base x rate = tentative tax - credits (unified, gift tax paid or deemed paid paid) = tax due
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Gross Estate
Distinguish: gross est (GE) v. probate est (state law);
2033: property owned by decedent 2036: retained interest 2038: revocable interest
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2039: annuities: J&S or self&S – cost to continue – (value of annuity
or refund) x decedent contrib/tot purch pr = inclusion
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2040: joint interests – T/C & CP include
portion owned at death
– J/T: survivor contrib/total cost x FMV = exclusion
– except J/T H&W, 1st to die incl 1/2
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2042: life insurance– Incl if payable to est– Or for ben of est– Or if dec has incidents
of ownership– CP: CA tracing: %
prems with CP = % proceeds CP
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2035 Gifts COD (add back to estate)– only certain gifts w/i 3 years– gifts under 2036, 2037, 2038, 2042– and add back any gift tax paid w/i 3 years
(gross up)
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Taxable Estate (TE)
2053 expenses, indebtedness (i.e. include FMV (net)), taxes
2054 losses during estate adm 2055 (& 2522) charitable contribution
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2056, 2056A (& 2523) marital deduction; unlimited: – property included in estate & passes or
has passed to surviving spouse– terminable interest to spouse: usually not
qualify (eg L/E)
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Surv sp include in her estate at FMV DOD if QTIP elec re qtip prop (qualifd inc int for life & no plan to appoint to other)
Est Tax - phase out low brakets & unifd credit >10M before 02
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Credits
2010 Unified Transfer Credit 2011 State Death Taxes (table) 2012 gift tax on prop included in estate 2013 tax on prior transfers 2014 foreign death taxes
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Form 706
due date who must file
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GST Tax:
Examples, tax imposition, 1 million exemption, highest rate E&G
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Planning
lifetime gift giving marital &
exemption trusts charitable irrevocable life
insurance trust living trust
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Repeal of Estate & GST Tax Continuation of Gift Tax EGTRRA `01
In General
2001-2009
2010
After 2009
2011
Estate & GST Tax Phase-out
Estate & GST Tax Repealed
Any Gift Tax
SUNSET
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Maximum Unified Transfer Tax Rate EGTRRA `01
Maximum Unified Trans-
Calendar Year fer Tax Rate
2002 50%
2003 49%
2004 48%
2005 47%
2006 46%
2007 45%
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Maximum Unified Transfer Tax Rate EGTRRA `01 (continued)
Maximum Unified Trans-Calendar Year fer Tax Rate
2008 45%2009 45%2010 & later Estate tax & GST repealed
Highest individual rate (35%) appliesto gift tax (phasing out lower brackets& UTC >10M Estates)
5% surcharge has also been repealed starting in 2002EFFECTIVE DATE: decedents dying after 2001
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Increase in UTC Exemption Equivalent & GST Tax Exemption EGTRRA `01
Gift Tax GST & Estate TaxCalendar Year Exemption Exemption
2002 $1 million $ 1 million2003 $1 million $ 1 million2004 $1 million $1.5 million2005 $1 million $1.5 million2006 $1 million $ 2 million2007 $1 million $ 2 million2008 $1 million $ 2 million2009 $1 million $3.5 million
EFFECTIVE DATE: Decedents dying after 2001
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Qualified Family Owned Business Deduction Repealed EGTTRA `01
Enacted as exclusion in `97 Amended to deduction in `98 Repealed for `04
Effective date: decedents dying after 2003
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Basis of Property from a Decedent EGTRRA `01
Because of Estate tax repeal in 2010 2010: Modified carryover (instead of step
up to FMV) Lesser of AB of decedent or FMV DOD No 6 month alternate valuation
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Basis of Property from a Decedent EGTTRA `01 (cont’d)
Executor can step-up basis 1.3m (plus certain unused capital, net op, built-in losses)
And step-up an additional 3 m for property passing to the surviving spouse
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Phase-out & Repeal State Death Tax Credit EGTRRA `01
Percentage of CurrentCalendar State DeathTaxCredit Year
Disallowed
2002 25%2003 50%2004 75%2005 100%
On Repeal in 2005, State Death Taxes can be deducted EFFECTIVE DATE: decedents dying after 2001
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Retention of Gift Tax EGTRRA `01
Max gift rate = 35% (max indiv inc tax rate) after 2009
Exemption amount 1 million after 2009 Transfer to trust = taxable gift unless donor
or donor spouse grantor trust (or otherwise provided)
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Modification of GST EGTRRA `01
Beyond Scope Deemed allocation of GST tax exemption – lifetime
transfers to trust (not direct skips) Retroactive allocation of GST exemption Severing of Trusts holding property where inclusion
rates >0 Modification of Valuation rules Relief from late elections New substantial compliance rules
Effective Date: After 2000
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Taxpayer Relief Act of 1997 - Chapter 26 Transfers from decedent’s Revocable
Grantor Trust; w/i 3 yrs of death; - not included in decedent’s estate; - incldg relinguishment of power to revoke; - treated as if gift made directly by dec; For 2035; For 2038; - if under gift exclusion amt, no reportable (taxable) gift
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- revocable trust treated as owned by decedent under 676;
- codifies 2 8th cir. Cases - H. McNeely and E. Kisling Est.
- effective for estates of decedents dying after 8/5/97
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Inflation indexing
(1) 10000 annual gift exclusion
(2) 750000 special use valuation ceiling
(3) 1m GSTT exemption
(4) 1m closely held bus installm paym reduced int ceiling
Effective - after 1998 for deaths and gifts after 12/31/97
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Gift Tax Filing for Gifts to Charity
return not req’d for gifts >annual exclusion (10,000)
if entire value = gift tax charitable deduction
effective - gifts made after 8/5/97
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IRS Restructuring & Reform Act of 1998 - Chapter 26 Qualified family owned business deduction
(1998) up to 675,000 for QFOBI QFOBI deduction + UTC exemption
equivalent 1.3 M (reduce UTC otherwise) rationale eliminate need small bus to
liquidate complex detailed requirements
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Value QFOBI >50% adjusted GE (less certain passive interests plus certain gifts)
sole proprietorship, p’ship, corp (p’ship corp owned 50/70/90% by 1/2/3 fams)
dec (or fam memb) own & mat partic 5 of 8 yrs qualified heir mat partic 5 of 8 of 10 recapture: elective
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Unified Credit to Increase
Year Credit Exempt Equiv
1997 192800 600,000
1998 202050 625,000
1999 211300 650,000
2000 & 2001220550 675,000
2002 & 2003229800 700,000
2004 287300 850,000
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Year Credit Exempt Equiv
2005 326300 950,000
2006 345800 1,000,000
(no inflation adjustment in UTC)