Taxation of Gifts and Estates

1
Chapter 21

• Taxation of Gifts and Estates

2
The Unified Gift and Estate Transfer Tax System

• The general theory behind the unified gift and
  estate transfer tax system is that at the time of
  transfer of property, either during life (gifts)
  or at death (bequests), the transferor will pay
  the same tax rate or amount for the transfer,
  regardless of when the transfer is made.

3
The Federal Gift Tax System

• A gift of property will be valued for gift tax
  purposes at the fair market value as of the date
  of transfer.
• Annual Exclusion and Gift Splitting
• Applicable Credit
• Qualified Transfers
• Gifts to Spouses
• Payments for Support
• Reporting and Paying Taxes

4
The Federal Estate Tax System

• The federal estate tax is an excise tax on the
  right to transfer assets by a decedent.
• Reporting and paying taxes
• Gross estate
• Deductions from the gross estate
• Funeral and Administrative Costs
• Final Medical Costs
• Debts

5
The Charitable Deduction

• Direct charitable bequests
• Charitable trusts (CRT)

6
The Marital Deduction

• A marital deduction occurs when the decedents
  estate claims as a deduction from the adjusted
  gross estate an unlimited qualifying bequest or
  transfer of property to a surviving spouse
• Qualifications for the Marital Deduction

7
The Marital Deduction

• Direct Bequests to a Spouse
• Qualified Terminable Interest Property Trust
  (QTIP)
• Power of Appointment Trust

8
Optimizing the Marital Deduction

• The Credit Equivalency (Bypass) Trust
• Use of Disclaimers
• Alien Surviving Spouses

9
Generation Skipping Transfer Tax (GSTT)

• The GSTT is in addition to the unified gift and
  estate tax and is designed to tax large transfers
  that skip a generation (that is, from grandparent
  to grandchild)

10
Estate Tax Reduction Techniques

• Do not over-qualify the estate, use the credit
  equivalency.
• Do not under-qualify the estate, use an
  appropriate amount for the marital deduction,
  generally to reduce estate tax to zero.
• Generally, remove life insurance from the estate
  of the client.

11
Estate Tax Reduction Techniques (contd)

• Change the ownership of life insurance or use
  irrevocable life insurance trust (must remove all
  incidents of ownership).
• Use lifetime gifts. Make use of annual
  exclusions with gift splitting.
• Use basic trusts.
• Use charitable contributions, transfers, and
  trusts.