1. Law T 510 - Estate & Gift - Instructor: Dwight Drake Six Big Tools Annual gift tax exclusion Unified Credit GST Exemption Valuation games Marital Deduction Charitable Deduction It’s About Leverage!

2. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam/Lucy Annual Exclusions- 2004 Sam Lucy Sam’s Kids 5 5 Exclusion Per Person $11,000. $11,000. Total $55,000. $55,000. Note: In 2006, annual exclusion increased to 12k.

3. Law T 510 - Estate & Gift - Instructor: Dwight Drake Fact Changes Four of Sam’s kids are married. Lucy has 3 children, all married. Sam has 4 grandchildren Lucy has 3 grandchildren

4. Law T 510 - Estate & Gift - Instructor: Dwight Drake Still 2004. Now… Sam Lucy Sam’s Kids 5 5 Sam’s In-laws 4 4 Sam’s 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake Supplemental Problem B - 2 Sam gifts $ 3.2 million to spouse Lucy 2523 gift tax marital deduction eliminates any tax exposure.

6. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 2005 Trusts Sam Trust ATrust B Kids, Descendants $1.8 mill Investments $500,000 Income

7. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 2005 Gift Tax Liability Value of 2005 Gifts $2,300,000. Prior gifts (Mar. Ded.) 0 Taxable Gifts 2,300,000

8. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake Lucy’s Credit Trust Lucy Estate 2006 Death Sam Credit Trust for Sam $2 million Children Remainder Residuary

12. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake Sam’s 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake 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. Law T 510 - Estate & Gift - Instructor: Dwight Drake Problem 15 (2) (a)Purpose of 2013 credit is to ease the burden of multiple tax hits triggered by multiple deaths in short time frame. (b)Sliding scale percentages reduces credit as time between respective deaths expands. (c)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 transferor’s estate under provision such as 2036 for retained life estate.