1. Taxation of Gifts and Estates
Chapter 21
Taxation of Gifts and Estates
Chapter 21: Taxation of Gifts and Estate Transfers

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.
Chapter 21: Taxation of Gifts and Estate Transfers

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
Chapter 21: Taxation of Gifts and Estate Transfers

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
Chapter 21: Taxation of Gifts and Estate Transfers

5. The Charitable Deduction
Direct charitable bequests
Charitable trusts (CRT)
Chapter 21: Taxation of Gifts and Estate Transfers

6. Chapter 21: Taxation of Gifts and Estate Transfers
The Marital Deduction
A marital deduction occurs when the decedent’s 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
Chapter 21: Taxation of Gifts and Estate Transfers

7. Chapter 21: Taxation of Gifts and Estate Transfers
The Marital Deduction
Direct Bequests to a Spouse
Qualified Terminable Interest Property Trust (QTIP)
Power of Appointment Trust
Chapter 21: Taxation of Gifts and Estate Transfers

8. Optimizing the Marital Deduction
The Credit Equivalency (Bypass) Trust
Use of Disclaimers
Alien Surviving Spouses
Chapter 21: Taxation of Gifts and Estate Transfers

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)
Chapter 21: Taxation of Gifts and Estate Transfers

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.
Chapter 21: Taxation of Gifts and Estate Transfers

11. Estate Tax Reduction Techniques (cont’d)
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.
Chapter 21: Taxation of Gifts and Estate Transfers