The Gift Tax
The same tax rates apply for both gift and estate tax purposes.
Taxable gifts made
subsequent to 1976 affect the estate tax base and, consequently, the rates at which the estate is
taxed. Until 2004, the same unified credit applied for both gift and estate tax purposes.
however, the maximum credit for estate tax purposes began exceeding the credit for gift tax
pp. C:12-3 and C:12-4.
Congress enacted gift splitting to allow for equitable treatment of donors living in
common law states in comparison with donors living in community property states. pp. C:12-4
The statement is false.
Due to the unified credit, relatively large taxable gifts can be
made before a gift tax liability is triggered.
The unified credit is reduced by 20% of the amount of the specific exemption (now
repealed) claimed with respect to gifts made between September 9, 1976 and December 31,
The maximum specific exemption that could have been claimed is $30,000, so the
maximum credit reduction is $6,000.
Under Sec. 2503(e), the direct payment of tuition expenses is exempt from gift
treatment regardless of for whom paid. p. C:12-8.
Transactions a and e constitute gifts.
The IRC exempts transaction d from classification
as a gift.
No gift arises in transaction c because each joint tenant contributes equally to the
For transaction b, a gift will arise when the other party spends or withdraws
pp. C:12-7, C:12-8, C:12-13 through C:12-15, C:12-28, and C:12-29.
Dick's gift to his distant cousin Earl is the present value of an eight-year income
interest, a term certain interest.
From Table B of the actuarial tables of Reg. Sec. 20.7520-1(a)
(2) contained in Appendix H, the factor for an eight-year income interest at a 7% interest rate is
0.417991 (1.0 - 0.582009, the factor for the remainder interest).
The amount of the gift is
$167,196 (0.417991 x $400,000).
The actual yield of 9% is not relevant to the calculations.
The tables used for valuing the gift contain a variety of earnings rates.
assumed rate of 7% was applicable for our calculation.
Thus, if Dick transfers an income
interest in property earning a 9% rate, the tables we used have "undervalued" the wealth that
Dick has shifted.
This transaction would be a favorable, legal transaction for Dick to pursue.
pp. C:12-11 through C:12-13.
To make a gift of a life insurance policy, Antonio must irrevocably transfer all incidents
of ownership in the policy to another party.
pp. C:12-14 and C:12-15.