Federal Estate and Gift Taxation in a Nutshell
Authors:
McNulty, John K. / McCouch, Grayson M.P.
Edition:
9th
Copyright Date:
2020
25 chapters
have results for Federal Estate and Gift Taxation
Chapter 1. Introduction 81 results (showing 5 best matches)
- These include Bittker & Lokken, Federal Taxation of Income, Estates and Gifts, Vol. 5 (2d ed. 1993); Harrington, Plaine, Kwon & Zaritsky, Generation-Skipping Transfer Tax (2d ed. 2001); and Stephens, Maxfield, Lind & Calfee, Federal Estate and Gift Taxation (9th ed. 2013).
- The GST tax is aimed at removing incentives to make gifts and bequests to persons more than one generation removed from the transferor in a manner that avoids estate and gift taxation of the transferred property in the intervening generations. In some ways, the GST tax actually creates incentives for transferors to ensure that property be subject to estate or gift tax in the intervening generations.
- To avoid the federal and state taxes on transmission or receipt of property at death, some property owners made large inter vivos transfers. To counteract this technique and partly for political reasons, the federal gift tax was introduced in 1924. (It was repealed in 1926 but reinstated in 1932.) This gift tax was imposed on lifetime gifts at rates equal to three-quarters of the estate tax rates on equivalent transfers made at death. The gift tax was, and is, progressive and cumulative over a donor’s lifetime—the tax on a taxable gift of a given amount is higher if the donor has made many or large taxable gifts previously, even in prior years. Today’s federal estate and gift taxes retain many of the essential features of their 1916 and 1932 forebears. In the intervening years, however, the taxes have evolved in several significant ways.
- Perspectives on the economics of transfer taxation are collected in Rethinking Estate and Gift Taxation (Gale, Hines & Slemrod eds., 2001), and in Does Atlas Shrug? The Economic Consequences of Taxing the Rich (Slemrod ed., 2000). For a provocative and insightful analysis of the political controversy surrounding the taxation of inherited wealth, see Graetz & Shapiro, Death by a Thousand Cuts (2005).
- The main sources of law and interpretation of the law are the federal estate, gift and GST tax statutes themselves and the Treasury regulations thereunder as well as reports of cases decided by the Tax Court, the Circuit Courts of Appeals, and other federal courts. Revenue rulings issued by the I.R.S. also provide helpful guidance and analysis. In addition, there are several useful books and treatises concerning the federal estate and gift taxes.
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Preface 6 results (showing 5 best matches)
- This book, now in its ninth edition, provides an introduction to the federal law of estate and gift taxation in the United States. It is thus a companion to McNulty & Lathrope, Federal Income Taxation of Individuals in a Nutshell (8th ed. 2012), and McCouch, Federal Income Taxation of Estates, Trusts, and Beneficiaries in a Nutshell (2d ed. 2020). It is intended to be used by lawyers, students and scholars from other legal systems, as well as by law students in this country as a supplement to usual law school courses and materials, and perhaps as a refresher or orientation for members of the bar. It attempts to summarize the law, frequently mentioning the purposes of, and sometimes the alternatives to, existing legal rules. Only occasionally does it attempt a critical evaluation, or a history, or full justification, of the existing law. Chapters on some fundamentals of estate and gift and generation-skipping transfer tax planning, and on reform of and fundamental alternatives to the
- The book is organized in a way that parallels many courses and teaching materials. It begins with an introduction to the gift tax, the estate tax and the generation-skipping transfer tax as separate components of the transfer tax system. After the introductory chapters, however, the book follows a “transactional” approach, taking up both the estate tax and the gift tax (and, where appropriate, the generation-skipping transfer tax) treatment of particular kinds of transfers, dispositions and situations.
- We hope this short book will prove useful as an introduction, review or overview of the subject matter of federal wealth transfer taxation in the United States. We must emphasize that it cannot substitute for, but at best can supplement, a thoroughgoing examination and analysis of the Code, regulations, rulings and cases, which are the principal sources of federal wealth transfer tax law and which must be emphasized in the study of that law by students in law school courses.
- The statutory provisions themselves form the core of the subject matter, and readers of this book should have a current copy of the Internal Revenue Code at hand. Much the same can be said for the Treasury Regulations under the transfer taxes. Frequent references to sections of the Code (often cited as “I.R.C. §” to distinguish them from cross references to other sections of this book) and the Regulations (cited as “Reg. §”) are given throughout the text. Rulings and other administrative pronouncements are cited to the volume and page of the Cumulative Bulletin (abbreviated as “C.B.”).
- Very little attention has been given to the matter of filling out required tax returns or forms or to other questions of compliance and administration of the tax laws. These matters fall outside the scope of a short volume of this kind.
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Chapter 16. Reform Proposals and Fundamental Alternatives to Present Transfer Tax Systems 64 results (showing 5 best matches)
- For a sampling of reform proposals concerning the integration of the estate and gift taxes and related matters, see Staff of Joint Committee on Taxation, Options to Improve Tax Compliance and Reform Tax Expenditures 392–424 (2005); Task Force on Federal Wealth Transfer Taxes, Report on Reform of Federal Wealth Transfer Taxes, 58 Tax Law. 93 (2004); U.S. Treasury Dept., Tax Reform for Fairness, Simplicity and Economic Growth (1984); ABA Section of Taxation, Task Force A Comment on the ABA Tax Section Task Force Report on Transfer Tax Restructuring, 41 Tax Law. 653 (1988); and Dodge, Redoing the Estate and Gift Taxes Along Easy-to-Value Lines, 43 Tax L. Rev. 241 (1988). For earlier proposals, see U.S. Treasury Dept., Tax Reform Studies and Proposals, House Comm. on Ways and Means, Senate Comm. on Finance, 91st Cong., 1st Sess. (1969); American Law Institute, Federal Estate and Gift Taxation: Recommendations and Reporters’ Studies (1969); and Advisory Comm. to the Treasury Department
- Taxation of Gifts and Bequests as Income.
- Estate and inheritance taxes apply on the death of each transferor. Consequently, they create differential results, and some would say inequities, depending on whether a transferor uses “generation-skipping” transfers and depending in any event on how closely the death of each transferor is followed by that of a recipient. (Notice also that many generation-skipping transfers incur no GST tax because of its several exemptions.) Even if the impact of successive taxation is ameliorated by credits of limited amount or duration, as under the present federal estate and gift taxes, estates that are taxed at several transmission points end up being diminished more by greater taxes than are estates taxed fewer times during the same period.
- Taxation as Income—Conclusion.
- Inheritance Taxation.
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Chapter 5. Transfers During Life: Application of the Estate and Gift Taxes 161 results (showing 5 best matches)
- § 2035(b). This provision requires that the gross estate be increased by the amount of any
- Since a transfer tax solely on property owned at death is easily avoided by making gifts shortly before dying, the federal estate tax, ever since its enactment in 1916, has contained a provision to bring some such gifts into the estate tax base. The federal gift tax, enacted in 1932, while limiting the scope of potential avoidance, did not entirely remove the need for special treatment of deathbed gifts, because of its lower rates, separate deductions and its fresh start up the rate schedule. Although the 1976 “unification” of the gift and estate taxes eliminated the most glaring disparities in the tax burden on inter vivos and testamentary gifts, still, enough differences remain (see § 79, ) to warrant inclusion of certain deathbed gifts in the gross estate.
- The gift tax will apply to an inter vivos transfer that is complete for gift tax purposes. But even though gift tax rates are nominally the same as those of the estate tax, it is necessary that the estate tax itself apply to a transfer made during life if that transfer is the functional equivalent of a testamentary transfer and would provide too easy a means of avoiding the estate tax. This potential avoidance results from the gift tax annual exclusion, from the different valuation dates under the two taxes, and from the fact that the estate tax base, but not the gift tax base, includes the assets used to pay the tax. These continuing advantages (even after the 1976 “unification” of the gift and estate taxes) of making a gift that is not included in the gross estate are discussed and criticized in § 79,
- As a practical matter, the utility of the widow’s election as an estate planning technique is severely limited by the special valuation rules of ). Those rules, if applicable, treat the widow as making a taxable gift of the full value of her one-half share of the community property, with no offset for her retained life estate, in computing the amount of her taxable gift for gift tax purposes. The transaction may also constitute a taxable exchange for income tax purposes. All in all, the widow’s election must be regarded as a complex and delicate estate planning instrument not to be employed without careful study of all the federal (and state) tax and non-tax issues it involves.
- § 2035(a) involves deathbed gifts of life insurance. Under § 2042(2), the proceeds of a policy on the decedent’s own life are includable in the gross estate if the decedent held any “incidents of ownership” at death. See § 41, . Since the value of a life insurance policy on a living person is often considerably less than the proceeds payable at death, the owner of a policy may seek to avoid estate taxation on the full amount of the proceeds by making a gift of the policy shortly before death. By including § 2035(a) blocks this gambit and ensures that the proceeds will be included in the gross estate if the insured person transferred any incidents of ownership within three years before death.
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Chapter 15. A Few Fundamentals of Estate Planning 45 results (showing 5 best matches)
- At one time, generation-skipping transfers offered an easy method of circumventing the federal transfer taxes. Now many taxpayers will seek to expose at least part of their property to estate or gift taxation as a safe harbor from an even costlier GST tax. Given the range of factors affecting the timing of transfers, the choice of assets, and applicable rates and exemptions, it will be difficult to reduce the tradeoffs between the various taxes to any convenient formula or general rule. Often the optimal estate plan will involve judicious balancing of tax burdens and benefits among the estate, gift and GST taxes.
- For a more extensive introduction to federal income tax principles, see McNulty & Lathrope, Federal Income Taxation of Individuals (8th ed. 2012), especially §§ 79 through 90, and McCouch, Federal Income Taxation of Estates, Trusts, and Beneficiaries (2d ed. 2020).
- Estate planning is a specialty involving complicated techniques and sound legal judgment; it cannot be mastered merely by applying mechanical rules. Nevertheless, some general introduction to a few guiding principles of estate planning can serve to review the basic structure of the federal estate and gift and generation-skipping transfer taxes and also convey something about the nature of estate planning possibilities given the impact of these transfer taxes. (Income tax factors also form an important component of estate planning, but they will be considered only briefly here.)
- Prior to the 1976 Act, the advantages of making taxable lifetime gifts were plainly visible. The gift tax provided a separate graduated rate schedule which allowed a separate “ride” up the brackets for lifetime gifts. Moreover, the gift tax rates were around 25% lower than the estate tax rates, and a separate $30,000 exemption was available only for lifetime gifts. As explained in previous sections, the unification of the estate and gift taxes in the 1976 Act put an end to these advantages. However, the 1976 Act left untouched two less obvious advantages of lifetime gifts compared to transfers at death.
- The second general tax advantage of making lifetime gifts is that the “tax-exclusive” gift tax base includes only the value of the transferred property (not including any gift tax imposed on the transfer), while the “tax-inclusive” estate tax base includes the entire value of property transferred at death (including any funds used to pay the estate tax). Thus, if a donor makes a gift more than three years before death, the amount of the resulting gift tax will never be subject to transfer tax. (If the gift is made within three years of death, the amount of the gift tax will be subject to the gross-up provision of § 2035(b).) This difference may seem inconsequential in small estates, but it becomes significant in very large estates. For example, assuming a flat 40% tax rate, a person starting with $28 million can make a $20 million gift and pay the resulting gift tax of $8 million. In contrast, a transfer of $28 million at death will incur an estate tax of $11,200,000, leaving only $...
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Chapter 3. The Estate and Gift Taxes Applied to Transfers at Death and During Life 72 results (showing 5 best matches)
- For a more detailed discussion of income in respect of a decedent, see McNulty & Lathrope, Federal Income Taxation of Individuals § 84 (8th ed. 2012), and McCouch, Federal Income Taxation of Estates, Trusts, and Beneficiaries ch. 3 (2d ed. 2020).
- by stating that no “law exempting any property (or interest therein) from taxation shall exempt the transfer of such property (or interest therein) from Federal estate, gift, and generation-skipping transfer taxes” unless Congress does so by specific reference to an appropriate provision of the Internal Revenue Code. See Deficit Reduction Act of 1984,
- In general, the rules about when a transfer is complete for gift tax purposes do not coincide exactly with the rules about when a transfer is complete for estate tax purposes. Therefore, a transfer that is complete and thus incurs a gift tax may nevertheless be regarded as incomplete for estate tax purposes, with the result that estate tax is payable on the same property or interest at the time of the donor’s death (with a credit for the gift tax incurred during life). See Chapter 5, especially § 39,
- These deceptively simple statutory rules give rise to difficult questions about what is a “gift” for federal gift tax purposes. In the absence of more detailed statutory assistance, regulations, rulings and cases are important aids in construing the statutory rules. The regulations under § 2511 prove especially helpful in explaining the appropriate treatment of several commonly encountered gift situations. See Reg. §§ 25.2511–1 and 25.2511–2. One of the first questions encountered in applying the basic statutory rules is what will be regarded as “property” for purposes of the gift tax. (A “gift” of services is not taxed as a gift by the federal gift tax—which raises serious questions of equity, efficiency and transfer tax (and income tax) policy.)
- §§ 2031 and 2033 by enacting a statute outside the estate tax code? Yes it can, but it must do so unambiguously. This is the import of a Supreme Court case, . The background is this: In 1937, Congress passed a housing act authorizing local authorities to issue tax-free obligations, termed “Project Notes.” The Project Notes were exempted by statute “from all taxation now or hereafter imposed by the United States.” The executors contended that the notes could be transferred without federal estate tax liability. After reviewing the legislative history, the Supreme Court held that “the presumption against implied tax exemptions [is] too powerful to be overcome” even by the express exemption from “all taxation.” This holding is not entirely surprising for two reasons. First, court had upheld a challenge to the estate taxation of Project Notes until 1984. See . Second, a contrary holding would have created a gaping hole in the estate tax (the Supreme Court in
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Chapter 2. The Federal Estate, Gift, and Generation-Skipping Transfer Tax Laws in Outline 92 results (showing 5 best matches)
- A major innovation of the revised GST tax enacted in 1986 was the taxation of “direct skips.” The classic direct skip is a bequest or inter vivos gift from a transferor to a grandchild. Had the property been transferred first to the transferor’s child, there would be some additional estate or gift tax consequences when and if the property passed from the transferor’s child to the grandchild. At least, some or all of the child’s annual exclusion or unified credit might be used, and perhaps some estate or gift tax would have to be paid.
- The federal gift tax, then, has a structure that resembles that of the federal estate tax, although the statutory language tends to obscure this resemblance. The gift tax begins with the notion of a net transfer—the value of the total gift under
- One subtle but significant difference between the gift tax and the estate tax involves the measurement of the tax base. For gift tax purposes, the amount of a gift is defined as the value of the transferred property, excluding any gift tax imposed on the transfer. Accordingly, the gift tax is said to be computed on a “tax-exclusive” base; there is no “tax on the tax.” In contrast, the estate tax base includes the value of all the property owned at death (including any amount used to pay the estate tax), not just the property that actually comes into the hands of the beneficiaries. The estate tax must be paid from “after-tax” dollars, and the estate tax base is therefore said to be “tax-inclusive.” As a result of this difference in the measurement of the tax base, the rates of the gift tax are lower than those of the estate tax, even though both taxes share the same ...suppose that both taxes are imposed at a flat 50% rate. A donor who makes an inter vivos gift of $1,000 will incur...
- There is no longer a separate trip up the rate schedule for the taxable estate at death. This result is achieved in a manner very like the cumulative computation of the gift tax. To the taxable estate are added all
- Example: D dies and leaves her entire estate of $20 million to her wealthy son, S. D’s estate will incur a federal estate tax of $4 million [$7,945,800 tax under § 2010], leaving S with a net bequest of $16 million (assuming no state death tax). (To simplify the computation, the unified credit is assumed to be equivalent to a $10 million exemption, without any adjustment for inflation.) Ten years later, S dies and leaves his entire estate to his daughter. Since S’s estate includes other property in addition to the bequest from D, his inheritance—assuming it enlarges his estate, directly or indirectly, by $16 million—will exhaust S’s unified credit (again, equivalent to a $10 million exemption), incur a federal estate tax of $2,400,000, and “push” the rest of S’s estate into the 40% bracket. Prior to 1986, D and other members of wealthy families could avoid such consequences by making gifts or bequests directly from grandparent to grandchild.
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Chapter 13. The Marital Deduction and Split Gifts 60 results (showing 5 best matches)
- Eligible property for which an election is made will qualify in its entirety for the estate tax marital deduction, and thus will not be taxed in the decedent’s estate. Since the property be subject to such a power), special rules govern the taxation of the property in the spouse’s hands. In the absence of these special rules, the property could pass to the remainder beneficiaries without being taxed in the spouse’s estate, since the spouse owns only a life income interest which expires upon her death. Therefore, qualified terminable interest property will be subject to transfer taxation in the spouse’s hands at the earlier of (1) the date on which the spouse disposes of all or part of the qualifying income interest (by gift, sale, or otherwise), in which case the spouse will be treated for gift tax purposes as making a transfer of the underlying property (see ...(2) the date of the spouse’s death, when the value of the underlying property will be included in the wife’s gross estate...
- A collateral effect of a gift-splitting election under § 2513 is that split-gift treatment applies not only for purposes of the gift tax but also for purposes of the generation-skipping transfer tax, thus making two GST exemptions available for gifts to skip persons. . However, the gift-splitting election has no application to the estate tax. Thus, for example, if the husband makes a gift subject to a retained life estate and the gift is treated as made one-half by husband and one-half by wife pursuant to an election under § 2513, the full value of the property may nevertheless be drawn back into the husband’s gross estate at his death. In this situation, any gift tax payable by the wife on the split gift will be attributed to the husband for estate tax purposes. ; for the estate tax consequences to the wife, see
- § 2056(b). The terminable interest rule arises from the basic premise of the marital deduction that property which qualifies for the deduction in the estate of the first spouse to die will eventually be taxed in the estate of the surviving spouse (if not disposed of before death). In the early days of the limited marital deduction, this premise followed from the attempt to correlate the treatment of property transferred tax-free under the marital deduction with treatment of property enjoyed by the surviving spouse tax-free under community property law; with the removal of the quantitative limits on the marital deduction, the same premise can be viewed as implementing the policy objective of treating the married couple as a single taxable unit. Accordingly, no marital deduction should be allowed if an interest in property given to the surviving spouse might, after the termination of that spouse’s interest, pass to someone else without being included in the surviving spouse’s gift or
- § 2523 allowed a gift tax marital deduction for an amount equal to one-half the value of any qualifying interest in non-community property transferred by a donor to his or her spouse. (Thus, for gift tax purposes the marital deduction was allowed for half of the amount of the property transferred, whereas for estate tax purposes the deduction could apply to the entire value of transferred property up to the aggregate limitation of 50% of the adjusted gross estate.) In 1976 Congress relaxed the 50% limitation and allowed a 100% deduction for the first $100,000 of interspousal gifts, no deduction for the next $100,000 of such gifts, and a 50% deduction for all interspousal gifts over $200,000. The 1981 amendments introducing the unlimited marital deduction and the special treatment of qualified terminable interest property for estate tax purposes were accompanied by parallel provisions in § 2523 for gift tax purposes.
- The availability of automatic estate splitting for married couples in community property states, and the consequent need to provide similar tax treatment for couples in separate property states, led Congress in 1948 to enact a marital deduction not only in the estate tax but also in the gift tax. The gift tax provisions set forth in closely resemble the estate tax provisions of § 2056, including a terminable interest rule with enumerated exceptions to ensure that inter vivos gifts which qualify for a marital deduction in the hands of the donor spouse will eventually be subject to gift or estate tax in the hands of the donee spouse. The following discussion will deal mainly with the differences between the marital deduction provisions in the gift tax and those in the estate tax.
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Chapter 14. Credits Against the Estate and Gift Taxes: Liability and Payment of the Taxes 39 results (showing 5 best matches)
- In order to remedy these inequities, the 1976 Act abolished the separate estate and gift tax rate schedules and replaced them with a for estate tax purposes and is adopted by reference in for gift tax purposes. The 1976 Act also abolished the separate estate and gift tax exemptions and replaced them with a and against both the estate and gift taxes, even though the estate and gift tax components are set forth in separate statutory provisions.
- Credit for Gift Tax.
- Note the effect on the estate tax computation under § 2001(b) of any changes in the unified rate schedule occurring between the time of a post-1976 taxable gift and the date of death. In determining the amount of the offset against the tentative estate tax under § 2001(b)(2), the gift tax “payable” with respect to a post-1976 gift is computed as if the rate schedule in effect at the date of death had been applicable at the time of the gift. This method of computation allows a consistent application of the estate tax rate schedule to a cumulative base including post-1976 taxable gifts, and avoids giving retroactive effect to interim rate changes.
- The mechanics of the unified credit in the estate tax context are somewhat complicated, due to the cumulation of lifetime gifts into the estate tax base. Section unified credit (reduced only by 20% of any exemption allowed under prior law for post-September 8, 1976 gifts) to be applied against the estate tax liability, seemingly regardless of whether any or all of the available credit has already been taken against the gift tax during life. In spite of appearances, however, this does not amount to a double allowance of the credit, since the estate tax is computed under § 2001(b) as the excess of (1) a tentative tax on the sum of the taxable estate taxable gifts made after 1976 (other than those already includable in the gross estate), over (2) the gift tax “payable” with respect to gifts made after 1976. The unified credit is then applied against this amount. To the extent that the unified credit was used during life, the gift tax “payable” will have been reduced, resulting in a...
- The separate gift and estate tax exemptions under prior law were worth more to high-bracket taxpayers than to those in lower brackets. For example, under the old estate tax rate schedule, the $60,000 estate tax exemption resulted in a tax saving of $9,500 for a $60,000 estate at the bottom of the rate schedule, compared to a $46,200 tax saving for an estate in the top rate bracket. In other words, the exemptions, acting as deductions, came “off the top,” and thus eliminated tax on $30,000 (gift tax) and $60,000 (estate tax) of taxable transfers at the taxpayer’s
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Chapter 4. Donative Intent and Consideration 57 results (showing 5 best matches)
- Underlying the definition of a gift for gift tax purposes are considerations related to the role of the gift tax as a backstop for the estate tax. Thus, a transfer which depletes the estate of the transferor is likely to be regarded as a taxable gift. However, that notion cannot safely be translated into a rule, for many consumption expenditures and other disbursements that do in fact deplete the wealth and hence the gross estate of a person are not transfers subject to gift tax. Support given to a family member whom the taxpayer is obligated to support, such as a minor child or spouse, is not a taxable gift. A transfer by an elderly parent to a child will be scrutinized very carefully, even if it is cast in the form of a purchase or other business transaction, to determine whether it is a gift in disguise. While not every estate-depleting expenditure will be taxed as a gift, a transfer of property that confers a net benefit upon the recipient and is not offset by a benefit flowing...
- To regard the release of support rights as consideration and hence to refrain from applying the gift tax to a transfer made for equivalent value in the form of a release of support rights makes perfectly good sense. The transfer of property in exchange for the release of support rights can be viewed as an anticipatory lump-sum substitute for the provision of support during the joint lifetime of the two spouses. For example, expenditures actually made by one spouse to provide support for the other spouse during marriage would not be taxable as gifts, even in the absence of a marital deduction. Such outlays are not taxed as gifts because they are made in discharge of a legal obligation. Although expenditures for support do reduce the gross estate and hence the taxable estate of the person who makes them, they are not the kind of gratuitous transfers at which the federal transfer taxes are aimed. Similarly, if one spouse dies without having fulfilled his or her support obligations...
- § 1041, the transferor is deemed to be making a gift even if he actually sells the property to his (or her) spouse for cash, and the transferee takes the transferor’s basis even though she (or he) paid the purchase price in cash (or other property). These income tax non-recognition and basis rules flow from the § 1041(b) characterization of the transfer as a gift. But that characterization certainly does not make the transferor taxable under the gift tax, at least if he (or she) receives fair and adequate consideration in return. The transferor then is not making a gift, for gift tax purposes, in the sense of a gratuitous transfer. For gift tax purposes, § 2516 deems qualified transfers pursuant to marital property settlement agreements to be made for a full and adequate consideration in money or money’s worth. For similar rules in the estate tax, see and § 2516 exemption into the estate tax. Moreover, the “gift” characterization of ...only the income tax, and not Subtitle B...
- In other words, this entire area of the law reflects a general policy of protecting the estate and gift tax base from being eroded by marital property settlements that result in artificial estate depletion. Against this policy lies a determination to allow expenditures or transfers that do not result in wrongful estate depletion to be made tax-free. Thus a concept of “artificial” or “wrongful” estate depletion may help to explain the gift and estate tax rules. Another way of viewing the matter is to ask whether the promisee or recipient of an inter vivos transfer either gave something in return that augmented the transferor’s wealth (and presumably will augment his or her gross estate at death) or relinquished some right or claim that the transferor otherwise could have been compelled to pay without incurring gift or estate tax. This understanding of the underlying policy, however, is not a legal standard or a way in which the Service or the courts generally frame the matter. At...
- Another factor affecting the structure and planning of marital property settlement agreements is the unlimited marital deduction, which offers an alternative avenue to avoid gift taxation on interspousal transfers made during marriage.
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Chapter 7. Life Insurance: Estate Tax and Gift Tax 44 results (showing 5 best matches)
- The price of making an inter vivos gift of life insurance, to minimize estate taxes or for any other purpose, is exposure to gift taxation. Just like any other item of property, a life insurance policy can be the subject of a transfer by gift, potentially taxable as such under the gift tax, whether the policy given away is one on the life of the donor or on the life of some other person. Also, a gift may take place if one person (the donor) pays premiums on a life insurance policy owned by another person (the donee), whether or not the policy itself was ever the subject of a transfer. The payment of premiums itself amounts to a gift when the policy is owned by someone other than the person paying the premiums.
- As indicated by the regulations, the time when a transfer of a life insurance policy is complete for gift tax purposes is when the donor has divested himself or herself of all dominion and control (i.e., all incidents of ownership) over the policy. Reg. §§ 25.2511–2 and 25.2511–1(h)(8). If the donor retains the power to name the beneficiary of the proceeds at the death of the insured person, no gift tax will be imposed at the time of transfer. If the donee surrenders the policy for its cash value, however, a completed gift will be deemed to take place at that time. (If the donee does not surrender the policy and the donor-insured retains the power to designate a beneficiary until his death, the proceeds will be included in the donor’s gross estate at that time under § 2042. In this way, the regulations seek to coordinate the gift and estate tax treatment of transfers of life insurance policies.)
- As the regulations elaborately state, if the insured purchases a life insurance policy or pays a premium on a previously issued policy, the proceeds of which are payable to a beneficiary or beneficiaries other than his estate, and with respect to which the insured retains no reversionary interest in himself or his estate and no power to revest the economic benefits in himself or his estate or to change the beneficiaries or their proportionate benefits (or if the insured relinquishes by assignment, by designation of a new beneficiary or otherwise, every such power that was retained in a previously issued policy), the insured has made a gift of the value of the policy, or to the extent of the premium paid, even though the right of the assignee or beneficiary to receive the benefits is Reg. § 25.2511–1(h)(8). Although this portion of the regulations refers to a gift by the insured person under the policy in question, it is equally clear that a donor may make a gift for gift tax...
- Proceeds of life insurance that are not includable in the decedent’s gross estate under § 2042 may turn out to be includable under some other estate tax provision. In this regard, special attention should be paid to the three-year rule of § 2035(a). If the decedent takes out an insurance policy on his own life, then makes a gift of the policy to another person and dies within three years after the gift, the proceeds will be includable in his gross estate under § 2035, even though he held none of the incidents of ownership at death and none of the proceeds were payable to his estate. In other words, the proceeds will be includable if the decedent held any of the incidents of ownership at any time within three years of death, due to the interaction of §§ 2035 and 2042, unless they were all disposed of before death for an adequate and full consideration. (Nevertheless, in determining the amount includable under
- If a life insurance policy is classified as community property under applicable state law and the insured spouse dies first, half of the proceeds belong to the surviving spouse and will be excluded from the decedent’s gross estate; as a result, only half of the proceeds will be included in the gross estate under § 2042. For example, if a community property policy on the husband’s life is made payable to his estate, and the husband dies first, half of the proceeds will be considered to be receivable by or for the benefit of his estate under § 2042(1). Reg. § 20.2042–1(b)(2). Similarly, if the policy is made payable to the couple’s child, the insured husband will be deemed to possess an incident of ownership in only half of the policy and therefore half of the proceeds will be included in his gross estate under ...designation remains revocable until the husband’s death, and the wife allows her one-half share of the proceeds to be paid to the child as designated beneficiary,... ...gift...
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Outline 80 results (showing 5 best matches)
- .History and Evolution of the Federal Estate, Gift, and Generation-Skipping Transfer Taxes
- .Nature of the Federal Estate, Gift and Generation-Skipping Transfer Taxes
- The Federal Estate, Gift, and Generation-Skipping Transfer Tax Laws in Outline
- The Estate and Gift Taxes Applied to Transfers at Death and During Life
- .Marital Property and Support Rights as Consideration: Estate Tax and Gift Tax
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Chapter 10. Inclusion and Valuation 62 results (showing 5 best matches)
- Preceding chapters of this book have dealt with the extent of inclusion or with the determination of which interest is to be included under the various rules of the estate tax. Similarly in the gift tax area, the question has been what property or interest is the subject matter of the gift and thus includable in the base for the gift tax. This chapter turns first to the question of how property or an interest in property that is admittedly includable in the gross estate shall be valued for
- § 2035(a) required that any gratuitous transfer made by the decedent within three years of death be drawn back into the gross estate. Although the regulations promulgated under prior law have been withdrawn and much of the case law interpreting those regulations is no longer directly applicable, the principles developed under prior law remain relevant by analogy in other areas of the estate tax (e.g., in tracing contributions to joint tenancy property under § 2040) and therefore deserve brief mention here. If an outright, “no-strings” lifetime gift was drawn back into the decedent’s gross estate, the regulations indicated that the amount to be included was the value of the gift property itself. In the case of a cash gift, it was held that the includable amount was equal to the amount of the cash gift, even if the donee had spent the cash or used it to purchase other property.
- Valuation for purposes of the gift tax is governed by principles largely resembling the general principles applicable in the estate tax area. Under , a gift made in property is to be valued at the date of the gift. If property is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the value of the property exceeded the value of the consideration is deemed a gift. . The value of the consideration offset evidently is to be established as of the date of the gift. The regulations under § 2512 provide detailed guidance to valuation problems under the gift tax (mirroring, in substantial measure, the principles enunciated in the parallel regulations under § 2031). Fair market value is to be determined as of the date of the completed gift, and is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable...and
- One important distinction to keep in mind is that each gift of property made during life is ordinarily valued separately from other gifts of similar property, even if all the gifts occur at the same time. For example, if a parent who owns all of the outstanding stock of a family corporation makes simultaneous gifts of 20% of the shares to each of her five children, each gift will be valued as a separate minority interest. In contrast, if the parent held the stock until death and left it by will to her children in equal shares, the stock included in the gross estate would be valued as a single controlling interest for estate tax purposes. By the same token, a single testamentary gift of a large block of stock may qualify for a blockage discount that would not be allowed in the case of separate, smaller gifts made during life. See
- § 2701 for transfers of interests in corporations and partnerships to family members, and those of § 2702 for transfers of interests in trust to family members, apply exclusively for gift tax purposes. If a person retains an interest that is subject to the special valuation rules of § 2702 and subsequently disposes of the retained interest during life or at death, the valuation of the subsequent transfer will be governed by general valuation principles. The regulations, however, allow adjustments in the amount of the subsequent transfer to prevent double taxation. See the discussion in § 49,
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Chapter 12. Deductions: Estate and Gift Tax 42 results (showing 5 best matches)
- allows a gift tax deduction for transfers to charities parallel to the deduction in the estate tax. As a result, contributions to charities are not treated as taxable gifts, largely in order to encourage (or to avoid discouraging) such donations. See generally Reg. §§ 25.2522(a)–1 through 25.2522(d)–1. This deduction, like the charitable deduction in the estate tax, has a “wealth-variant” or “gift-variant” quality. That is to say, a taxpayer who has considerable wealth and who has made substantial gifts in the past will save more in gift taxes by making a deductible gift to a charity in lieu of a taxable gift to some other recipient than will a poorer taxpayer. The basis for this effect is revealed by a glance at the graduated transfer tax rates set forth in § 2001(c) and incorporated by reference in ...-variant effect of the charitable gift deduction is that of the taxpayer who has not sufficiently used up his or her annual exclusions to have to pay any tax on a non-charitable...gift
- allows a deduction, in determining the taxable estate, for the amount of all bequests, legacies, devises, or transfers to a governmental entity for exclusively public purposes, or to a corporation, trust or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, or to a veterans’ organization, as described in the statute. Like its counterparts in the income and gift taxes, the estate tax charitable deduction serves to encourage charitable contributions and to provide an incentive for such socially desirable activity. To the extent the activity supported by deduction-induced contributions provides benefits and services that otherwise would have to be financed by government, the charitable deduction serves to reduce the cost of government at the same time that government foregoes some tax revenue. The estate and gift tax charitable deductions are unlimited in amount; they include no percentage limitations comparable to those...
- As government faces ever-increasing budgetary constraints, the efficiency of the charitable contribution deduction as a way of providing support to charitable organizations or relieving government of some burdens of providing social benefits deserves closer scrutiny. In particular, the “wealth-variant” effect of the charitable deduction raises difficult questions of policy. A deduction for a contribution of, say, $1,000 to charity will have a very different impact in a very large estate than in a small estate. The after-tax cost for a very wealthy decedent to make a gift of $1,000 to his favorite charity can be as little as $600 ($1,000 contribution minus $400 saved in taxes by the deduction for an estate in the 40% bracket yields a net cost of $600 to the taxpayer). For a taxpayer who, as a result of other deductions, credits or exemptions, would have no taxable estate, the charitable contribution deduction afforded by ...benefit at all. The after-tax cost of his gift is equal to...
- Disallowance of Charitable Deductions—Estate Tax and Gift Tax: §§ 2055( )(2) and 2522(
- rate of tax and thus it has a “wealth-variant” quality. For example, a funeral expense deduction of $1,000 will have a different tax effect in the case of a decedent with a large gross estate than it will in the case of a decedent with a small gross estate. The $1,000 deduction will reduce the tax liability of the estate by an amount equal to $1,000 times the marginal rate of tax payable “at the top” by the estate. Thus, a $1,000 deduction for an estate in the 40% bracket would save $400 in tax, but a deduction of the same amount for a smaller estate in the 20% bracket (i.e., a taxable estate over $10,000 but not over $20,000) would save only $200 in tax. This “wealth-variant” (or more properly, “estate-size-variant”) effect of the deduction is perfectly proper in a tax system with a graduated rate schedule. A larger net estate pays tax at a higher rate and hence should be relieved of more tax than a smaller net estate when it incurs a deductible expense. In recent years the wealth...
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Chapter 11. Exemptions and Exclusions: Gift Tax (Gifts of Future Interests and Gifts to Minors) 38 results (showing 5 best matches)
- As the regulations put it, no part of the value of the gift of a future interest may be excluded in determining the total amount of gifts made during the taxable year. The regulations go on to say that “future interests” is a term that includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession, or enjoyment at some future date or time. Reg. § 25.2503–3(a). Thus the prohibition against an annual exclusion for a gift of a future interest will apply even in the case of an indefeasibly vested remainder where it is possible at the time of the gift to identify the individual who (either personally or through his estate) will eventually receive full beneficial ownership of the property and where there is no possibility of the interest shifting by some contingency or condition to another taker. Furthermore, not even a single exclusion will be...
- § 2503(b), no part of a gift to an individual who has not reached the age of 21 years on the date of the transfer shall be considered to be a gift of a future interest in property if the property and the income therefrom may be expended by or for the benefit of the donee before he reaches the age of 21 years and, to the extent not so expended, will pass to the donee when he reaches age 21 or, if he dies before that age, will be payable to the donee’s estate or as he may appoint under a general power of appointment. Thus, for example, a gift in trust for a minor child will be eligible for the annual exclusion, even though the child is not immediately entitled to any distributions of income or corpus, if the trustee has unlimited discretion to expend income and corpus for the benefit of the child and all unexpended income and corpus is required to be paid to the child at age 21 (or to the child’s estate if the child dies before reaching age 21). Indeed, the income and corpus need not...
- 2503(a) defines “taxable gifts” as the total amount of gifts made during the calendar year, less the deductions provided in §§ 2522 and 2523. In computing taxable gifts, every donor is entitled to an annual, per-donee , which states that in computing taxable gifts for the calendar year, in the case of all gifts (other than gifts of future interests in property) made to any person by the donor, the first $10,000 of such gifts to such person shall not be included in the total amount of gifts made during that year. Since a gift of a future interest does not qualify for the annual exclusion, the entire value of a future interest in property must be included in the total amount of gifts for the calendar year in which the gift is made. In other words, the first $10,000 of present-interest gifts made by a donor to a particular donee during a calendar year are automatically excluded in determining the donor’s gift tax liability. Thus, a donor who makes gifts of $10,000 to each of six...
- The size of the annual exclusion has been changed from time to time. These changes remain relevant in later years by reason of the way the gift tax is calculated. Although the gift tax is payable on an annual basis, each year’s gift tax computation builds on the donor’s cumulative taxable gifts made in prior years. To determine the tax payable for a given year, the total taxable gifts made since enactment of the gift tax on June 6, 1932 to the end of the current year must be aggregated and a tentative tax on such gifts must be computed at present rates. From that amount must then be deducted a tentative tax, again determined at present rates, on the total taxable gifts made in prior years. The amount so calculated is the gift tax for the current year. and 2502. Against the gift tax so computed may be offset any unused portion of the unified credit. . For purposes of determining the aggregate amount of taxable gifts in past years, exclusions, deductions and exemptions may be taken...
- Although there is no statute or regulation directly on point, it has always been assumed that transfers in satisfaction of a support obligation are not gifts subject to transfer taxes. This proposition is supported by inference from numerous cases and rulings. Education and medical care are marginal “gift-support” items which are now expressly excluded from taxable gifts by
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Chapter 9. Powers of Appointment: Estate and Gift Tax Consequences 32 results (showing 5 best matches)
- Reg. §§ 25.2514–1 through 25.2514–3. Many of the definitions and other rules in the gift tax provisions coincide with or parallel the estate tax regulations on the same points. For example, the gift tax regulations, echoing the estate tax regulations, state that the term “power of appointment” does not include powers reserved by a donor to himself. § 2514 or of the regulations thereunder to be construed to limit the application of any other section of the Code or the regulations. Specifically, the power of the owner of property to dispose of his own beneficial interest is not a power of appointment, and the interest is includable in the amount of his gifts to the extent that it would be includable under § ...So, if Tom (after October 21, 1942) creates a trust to pay income to his wife Alice for life, with power in Alice to appoint the entire trust property during her lifetime to a class consisting of her children, and a further power to dispose of the entire corpus by will to anyone...
- Since the mere possession of a post-1942 general power of appointment causes estate tax consequences, some incentive is created to exercise or release such a power during life. By treating a lifetime exercise or release as a taxable event, the gift tax rule of § 2514 backstops the estate tax and prevents easy, tax-free avoidance of
- In many respects, the rules of the gift tax with respect to powers of appointment complement the rules of the estate tax. The general rule of the gift tax, embodied in of such a power shall not be deemed a transfer by the holder for gift tax purposes, if the disclaimer meets the requirements of ). A statutory definition of what is a “general power of appointment” for gift tax purposes can be found in § 2514(c); it is almost identical to the estate tax definition in
- From the nature of a power of appointment, one can easily infer that estate tax consequences may and should be involved. For example, if the decedent held a power of appointment which could have been exercised to make him the owner of property held in trust, and the decedent exercised the power by will in favor of another person, the exercise of the power is functionally equivalent to a testamentary gift of property and will be taxed accordingly. Indeed, the mere possession of such a power, even if it is not actually exercised, may be viewed as approaching beneficial ownership of the property subject to the power.
- § 2514 attempts to spell out when dealings with a power of appointment constitute a transfer, the gift tax consequences of such a transfer must be determined in the light of other gift tax principles as to completion, consideration, disclaimer, and the amount and value of the gift, if any.
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Chapter 8. Annuities and Employee Death Benefits: Estate Tax and Gift Tax 27 results (showing 5 best matches)
- § 2039 in 1954, annuities were subject to estate taxation, if at all, under other provisions such as for annuities which removed some uncertainties and also dealt specifically, in § 2039(b), with the problem of annuities purchased in part by contributions of the decedent and in part by contributions of others.
- sets forth the basic estate tax rules for the taxation of annuities. Section 2039 is not exclusive, however, and the possibility remains that some other estate tax section will apply. (That possibility will be discussed briefly after an examination of
- Estate Taxation of Annuities: § 2039
- In the absence of a specific statutory provision, the application of the gift tax to inter vivos transfers of annuities is governed by general gift tax principles. For example, a taxable gift may occur if one person purchases an annuity solely for the benefit of another. (Of course, it is possible that such a transaction involves compensation for services or the purchase of property, with potential income tax, but not gift tax, consequences to follow.) Also, if one person purchases an annuity that will benefit both himself and someone else, at once or later, a gift may be involved, since the purchaser is making a transfer in part to or for the benefit of the other person. Further information must be obtained to ascertain when the transfer is complete, what offsetting consideration, if any, has been received, whether the transfer is at arm’s length and in the ordinary course of business and, altogether, what amount must be included in the gift tax base. Also, a problem may arise with...
- § 2039 and the problem to which it is addressed, one must understand something about the nature of an annuity and how it can present matters of interest to an estate tax system. An annuity is defined as one or more payments or the right to receive such payments, for a period of time, such as for life or for a term of years or for some other period. Sometimes an annuity is purchased by the person entitled to receive payments under it, sometimes the annuity is received as a gift, and sometimes it is provided by an employer to an employee as a form of compensation. For estate tax purposes, the purchased annuity provides the best illustration. Thus, if a taxpayer transfers property to an annuity company (or any other person) in return for a promise by the transferee (called the issuer) to pay $8,000 a year to the taxpayer (called the annuitant), the taxpayer has purchased an annuity and each annual payment is a payment of the annuity. If the stream of $8,000 annuity payments is to last...
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Chapter 6. Jointly Owned Property and Community Property 25 results (showing 5 best matches)
- Jointly Owned Property and Community Property—Estate and Gift Tax: § 2040
- Gift Tax.
- § 2040(a) provides that a decedent’s gross estate shall include the value of property held jointly by him and another person or persons with right of survivorship. One exception: if the property was acquired by the decedent and the other joint owner by gift, devise, bequest or inheritance, only the decedent’s fractional share of the property must be included in his gross estate. In all other events, the entire value of the jointly owned property is included in the estate of the first joint owner to die,
- In determining what consideration was furnished by the other joint owners, there is taken into account only that portion of such consideration which is shown not to have been acquired from the decedent for less than an adequate and full consideration in money or money’s worth. Under this general rule, it is obvious that if A gives $10,000 to B, which B turns around and invests in joint tenancy property with A, and A then dies survived by B, the entire value of the property at A’s death will be includable in his gross estate. Although B nominally furnished the consideration for the joint tenancy property, the funds used to acquire the property were acquired as a gift from A and will therefore be attributed to A under the tracing rules of ...exception, however, involves income from property given by the decedent to the other joint owner. The income generated by such gift property in the hands of the other joint owner will not be traced back to the decedent; if such income is used to...
- The treatment of income from gift property, e.g., rent, dividends and interest, must be distinguished from the treatment accorded appreciation in tracing the source of consideration under § 2040(a). If A gives Blackacre, worth $10,000, to B and B sells it for $15,000 and then uses the proceeds to purchase joint tenancy property with A, what result? There would seem to be little basis for reaching a different result than if income from Blackacre were used, and the cases agree that B should be treated as having contributed the $5,000 attributable to the appreciation in Blackacre. See
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Index 140 results (showing 5 best matches)
Table of Cases 50 results (showing 5 best matches)
Copyright Page 3 results
- and the Nutshell Logo are trademarks registered in the U.S. Patent and Trademark Office.
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
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- Publication Date: December 16th, 2019
- ISBN: 9781684674541
- Subject: Taxation
- Series: Nutshells
- Type: Overviews
- Description: This comprehensive guide can serve either as a course supplement or as a refresher for members of the bar. Expert commentary summarizes the law and offers critical perspectives on the estate, gift, and generation-skipping transfer taxes, including lifetime and testamentary transfers, joint-and-survivor tenancies, life insurance, annuities, and powers of appointment; inclusion and valuation; exemptions and exclusions; deductions; and tax liabilities. Additional chapters cover basic tax and estate planning concepts, reform proposals, and fundamental alternatives to the current transfer tax system.