Accounting 5315 Estate and Gift Taxation

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Accounting 5315 Estate and Gift Taxation Group
5 Sarah Espinoza Lance Hocutt Gary
Powell Corey Thomas
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Case 4 Facts

• In 1995, John gave his daughter some of his
  separately owned IBM stock worth 610,000 and
  Jenny gave her sibling 300,000 in cash. In 2000
  John gave his daughter an additional 400,000 in
  Microsoft stock and Jenny gave her son a 350,000
  vacation home. In 2003, John gave 1) his sister
  375,000 in cash 2) Texas Tech University
  275,000, and 3) the Democratic National
  Committee (a PAC) 50,000. Jenny gave each of
  her two siblings 150,000.

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Case 4 Questions and Solutions

• Assuming neither John nor his wife Jenny had ever
  made any other taxable gifts then those indicated
  above, calculate the total amount of the gift
  taxes due from these gifts. If no gift taxes was
  due, state how much unified credit each has used,
  if

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Case 4 Questions and Solutions

• No gift splitting was employed.
• Total tax paid 166,490
• John and Jenny gift split in all years.
• Total tax paid 395,730
• John and Jenny split in 2000 and 2003, but not in
  1995
• Total Tax Paid 175,320

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Case 4 Questions and Solutions

• Explain the advantages and disadvantages, if any,
  of gift splitting in this situation.
• In this situation, there is no advantage to gift
  splitting. Whether the couple elects to gift
  split in all years or for the final two years,
  they will wind up paying more gift tax than if
  they chose to forego gift splitting election. In
  fact, they will wind up paying significantly more
  gift tax if they gift split in all three years
  rather than just the final two.

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Case 5 Facts

• In year 1, Louis entered into a contract with an
  insurance company under which he paid the company
  750,000 then and there. They agreed that
  beginning in year 10, the company would pay Louis
  9,000 per month for life and, after his death,
  the company would make like payments to his
  spouse for as long as she lived. However, Louis
  died in year 8, survived by his spouse.

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Case 5 Questions and Solutions

• Apply section 2039 to the facts above.
• 2039(a) states that The gross estate shall
  include the value of an annuity or other payment
  receivable by any beneficiary by reason of
  surviving the decedent under any form of contract
  or agreement entered into after March 3, 1931if,
  under such contract or agreement, an annuity or
  other payment was payable to the decedent,

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Case 5 Questions and Solutions

• or the decedent possessed the right to receive
  such annuity or payment, either alone or in
  conjunction with another for his life or for any
  period not ascertainable without reference to his
  death or for any period which does not in fact
  end before his death.
• Therefore, the annuity would be includable in
  Louis estate.

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Case 5 Questions and Solutions

• What is the result in a, above, if the spouse had
  paid 250,000 of her funds toward the 750,000
  cost of the contract?
• Under 2039(b), it is stated that 2039(a) shall
  apply to only such part of the value of the
  annuity or other payment receivable under such
  contract or agreement as is proportionate to that
  part of the purchase price therefore contributed
  by the decedent.

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Case 5 Questions and Solutions

• Furthermore, 20.2039-1(c) specifically states
  that the amount to be included in a decedent's
  gross estate under section 2039(a) and (b) is an
  amount which bears the same ratio to the value at
  the decedent's death of the annuity or other
  payment receivable by the beneficiary as the
  contribution made by the decedent. Additionally,
  20.2039-1(c) Example (1) specifically addresses
  this situation. Accordingly, the 250,000
  contributed by Louis spouse is not included in
  the gross estate.

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Case 5 Questions and Solutions

• What is the result in a) above, if 375,000 of
  the cost had been paid by Louis employer?
• 2309(b) further states For purposes of this
  section, any contribution by the decedents
  employer or former employer to the purchase price
  of such contract or agreement (whether or not to
  an employers trust or fund forming part of a
  pension, annuity, retirement, bonus or profit
  sharing plan) shall be considered to be
  contributed by the decedent if made by reason of
  his employment.

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Case 5 Questions and Solutions

• Therefore, the 375,000 of the cost paid by
  Louis employer is included in the gross estate.

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Case 5 Questions and Solutions

• Would the results in a) above, be different if,
  pursuant to a qualified pension plan, Louis
  employer had purchased the contract for him and
  his spouse?
• According to 2039(b) there would be no
  difference. Note 20.239-2 covers annuities
  under qualified plans, and it appears that it
  would in fact exclude this amount. However, it
  is based on 2039(c) which CCH says has been
  repealed and does not appear in the code.

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Case 6 Facts

• In year one, Doris made a 300,000 gift of cash
  to her son James, and in year two, Doris paid a
  125,000 gift tax on the transfer.

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Case 6 Questions and Solutions

• Upon Doriss death later in year two, what is
  included in her gross estate under Section 2035?
• According to 2035, if the decedent made a
  transfer (by trust or otherwise) of an interest
  in any property, or relinquished a power with
  respect to any property, during the 3-year period
  ending on the date of the decedent's death, and
  the value of such property (or an interest
  therein) would have been included in the
  decedent's

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Case 6 Questions and Solutions

• gross estate under 2036, 2037, 2038, or 2042
  if such transferred interest or relinquished
  power had been retained by the decedent on the
  date of his death, the value of the gross estate
  shall include the value of any property (or
  interest therein) which would have been so
  included. Additionally, the amount of the gross
  estate (determined without regard to this
  subsection) shall be increased by the amount of
  any tax paid under chapter

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Case 6 Questions and Solutions

• 12 by the decedent or his estate on any gift made
  by the decedent or his spouse during the 3-year
  period ending on the date of the decedent's
  death. Therefore, the 300,000 gift and the
  125,000 in taxes paid on the gift must be
  included in her gross estate.

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Case 6 Questions and Solutions

• If Doris had held on and lived for 4 years after
  the gift, what would be included in her gross
  estate under Section 2035?
• Nether the gift or the taxes paid on the gift
  would be included in her gross estate.

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Case 6 Questions and Solutions

• If Doris had not made the gift (and, consequently
  had not paid the 125,000 gift tax), what would
  be included in her gross estate?
• These amounts would still be included in the
  gross estate.

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• Thanks for your time and attention!