When the estate exceeds $5,490,000 (gift tax exclusion amount) AND
Within 9 months after the decedent’s death
What is included in the gross estate at the date of death (or distribution or 6 months)?
The FMV of all worldwide property (real, personal, tangible, intangible) owned INCLUDING
50/50 of the FMV of property owned jointly with a spouse OR
Any other percentage as previously arranged if owned jointly with another person
Plus life insurance proceeds if the estate was the beneficiary
Plus all property entitled to be received by the decendent
What items may be included as nondiscretionary deductions to determine the adjusted gross estate? (don’t need to know all)
Funeral expenses
Medical bills
Administrative expenses
Claims against the estate
Taxes before death
State death tax
What items may be included as discretionary deductions to determine the taxable estate?
Charitable bequests (unlimited)
Marital deduction (unlimited)
True / False: The executor may elect to deduct medical expenses on the decendent’s 1040 Schedule A rather than from the estate.
True
True / False: The executor may elect to deduct funeral expenses on the decendent’s 1040 Schedule A rather than from the estate.
False
Funeral expenses are only deduced as administrative expenses from the estate.
True / False: The estate may only transfer 50% of the assets to the spouse (50/50 split).
False
The estate may transfer the entire amount to the spouse (referred to as the “unlimited marital deduction”)
The applicable exclusion amount is equal to what formula?
40% x (tentative tax base at death - $5,490,000) to a maximum $2,141,800.
Suppose Mary’s husband, Rand, predeceased her. The total estate for Mary, including what she inherited from Rand is $6,000,000. Is it possible to distribute this amount to the hiers and not pay estate tax?
Yes, Mary gets a tax credit of $2,141,800. Rand would have received that same credit. Any amount of Rand’s credit not used can be applied to Mary’s estate.
True / False: Gift taxes paid on gifts made after 1976 are a credit that can be applied to the current estate tax.
False
These may be deducted from the tentative estate tax, but are not a credit.
What is the dollar value of gifts that may be excluded from tax in a year for each person to whom a gift is given?
$14,000
True / False: Each spouse may exclude up to $14,000 in annual gifts to the same donee.
True
Which 4 situations have unlimited exclusion from gift taxes?
Payments made directly to an educational institution
Payments made directly to a health care provider for medical care
Charitable gifts
Marital deduction
What are 4 types of future interest gifts
Reversions (gifting assets and later getting the property back)
Remainders (distributing the asset at some future time)
Trust income interests where accumulation of income is mandatory and distributed in the future
Present interests w/o ascertainable value
When are gifts of future interest eligible for the annual gift exclusion.
Never. The donor (gifter) must pay gift tax at the time the gift is made.
A donor gifts an incomplete gift. When is this gift eligible for the annual gift exclusion.
Never. The incomplete gift is counted as if remaining in the estate and is subject to estate tax.
True / False: A gift represents taxable income to the recipient.
False
The taxable amount of a gift exceeds the $14,000 annual exclusion by $10,000. No other gifts are made. Who pays the gift tax?
No-one. A gift tax return must be filed, but no-one actually pays the tax until the cumulative (all years) taxable gifts exceed $5,490,000.
Which 2 nondiscretionary expenses of an estate may use an option to deduct on the personal income tax return instead?
Medical expenses
Administrative expenses
True / False: Amounts paid directly to an educational institution or medical facility are considered gifts with 100% exclusion.
