Six Big Tools

1
Six Big Tools

• Annual gift tax exclusion
• Unified Credit
• GST Exemption
• Valuation games
• Marital Deduction
• Charitable Deduction
• Its About Leverage!

2
Sam/Lucy Annual Exclusions- 2004

• Sam
  Lucy
• Sams Kids 5 5
• Exclusion Per
• Person 11,000.
  11,000.
• Total 55,000.
  55,000.
• Note In 2006, annual exclusion increased to 12k.
  

3
Fact Changes

• Four of Sams kids are married.
• Lucy has 3 children, all married.
• Sam has 4 grandchildren
• Lucy has 3 grandchildren

4
Still 2004. Now

• Sam
  Lucy
• Sams Kids 5
  5
• Sams In-laws 4
  4
• Sams GC 4
  4
• Lucy Kids 3
  3
• Lucy In-laws 3
  3
• Lucy GC 3
  3
• Total Bodies 22
  22
• Max Ann. Exc. 242,000
  242,000.
• 2006 Amount 264,000
  264,000.

5
Supplemental Problem B - 2

• Sam gifts 3.2 million to spouse Lucy
• 2523 gift tax marital deduction eliminates any
  tax exposure.

6
Sams 2005 Trusts
Sam
1.8 mill Investments
500,000
Trust A
Trust B
Income
Income
Kids, Descendants
7
Sams 2005 Gift Tax Liability

• Value of 2005 Gifts 2,300,000.
• Prior gifts (Mar. Ded.)
  0
• Taxable Gifts 2,300,000

8
Sams 2005 Gift Tax Liability

• Value of 2005 Gifts 2,300,000.
• Prior gifts
  0.
• Taxable Gifts
  2,300,000.
• Tax Computation
• 780,800 (300,000 x .47)
  921,800.

9
Sams 2005 Gift Tax Liability

• Value of 2005 Gifts 2,300,000.
• Prior gifts
  0.
• Taxable Gifts 2,300,000
• Tax Computation
• 780,800 (300,000 x .47)
  921,800
• Unified Credit
  (345,800)
• Gift Tax
  576,000

10
Lucy Consents to Split 2005 Gift

• Lucy
  Sam
• Taxable Gift 1,150,000
  1,150,000
• Tax Calculation
• 345,800 (150,000 x .41) 407,300
  407,300
• Unified Credits (345,800)
  (345,800)
• Gift Tax 61,500
  61,500
• Tax savings 453,000 (78)
  

11
Lucys Credit Trust
Lucy Estate 2006 Death
2 million
2 million
Sam
Credit Trust for Sam
Remainder
Residuary
Children
12
Sams Estate Tax 2007 Death

• No Credit Trust
  Credit Trust
• Estate Value 6,500,000.
  4,500,000.
• 2005 Gift Taxes 576,000.
  576,000.
• Post 76 Gifts 2,300,000.
  2,300,000.
• Taxable Estate 9,376,000.
  7,376,000.

13
Sams Estate Tax 2008 Death

• No Credit Trust
  Credit Trust
• Taxable Estate 9,376,000.
  7,376,000.
• Tentative Tax 4,100,000.
  3,200,000
• Tax on Prior Gifts
• of 2.3 million, net
• unified credit (570,000)
  (570,000)
• Unified Credit (780,800)
  (780,800)
• Estate Tax 2,749,200.
  1,849,200.

14
Dead or Endangered Credits

• Section 2012 Credit for Gift Tax Applies only
  to pre-77 gifts. Obsolete.
• Section 2011 Credit for State Death Taxes
• Applicable Percentage
• 2002 75
• 2003 50
• 2004 - 75
• 2005 - 0 - Replaced with 2058 deduction

15
2013 Credit for Tax on Prior Transfers

• Purpose To ease the burden of multiple tax hits
  triggered by multiple deaths in short time frame.
• Credit Formula
• Credit Value of
  transferred Property x Estate Tax
• 
  Taxable Estate
• Phase Out Percentages
• 2 yrs before or after
  100
• 4 yrs before
  80
• 6 yrs before
  60
• 8 yrs before
  40
• 10 yrs before
  20
• More 10 before, 2 after
  0

16
Problem 15 - (1)

• a. No return required if gross estate less than
  unified credit applicable exclusion amount.
  6018(a). 1.5 mill estate not required to file.
• b. 1.5 mill estate may have to file if taxable
  gifts post 1976 reduce unifies credit exclusion
  amount to less than 1.5k. 6018(a)(3). Also,
  nonresident noncitizen with estate over 60k must
  file. 6018(a)(2).
• c. No refund of any excess credit. 2010(d).

17
Problem 15 (2)

• Purpose of 2013 credit is to ease the burden of
  multiple
• tax hits triggered by multiple deaths in short
  time frame.
• Sliding scale percentages reduces credit as time
  between
• respective deaths expands.
• Time frame is death of transferor 10 before
  decedent
• death or 2 yrs after. After provision included
  in case property
• brought back and taxed in transferors estate
  under provision
• such as 2036 for retained life estate.