Ch+5+Gift+Tax.pptx - GIFT TAX Dr Woodyard FHCE 4220...

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GIFT TAX Dr Woodyard FHCE 4220
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LEARNING OBJECTIVES History and evolution of US gift tax system Nature and elements of gifts Taxability, lifetime exclusions, annual exclusions Present interest v. future interest Crummey provisions and powers Gift valuation and adjusted basis Gifting strategies (now v. later)
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THE GIFT TAX SYSTEM Historical background Gift tax is an excise tax on the right to transfer property to another person during one’s lifetime Gift tax rates were initially lower than estate tax rates The gift and estate tax systems were unified in 1976 They were de-unified from 2003 to 2010 They were reunified after 2010 and permanently (maybe) in 2012.
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TRA 2010 AND ATRA 2012 TRA 2010 Increased lifetime exclusion to $5,000,000 and highest marginal rate to 35% Introduced portability for married persons ATRA 2012 Indexed $5,000,000 lifetime exclusion by inflation For 2016, this number is $5,450,000 Progressive tax schedule for first taxable $1,000,000 40% marginal rate for any amount in excess of $1,000,000 Check out tables on page 135
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CHARACTERISTICS OF A GIFT Voluntary Transfer of property Without full consideration Parties: Donor Donee
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ELEMENTS OF A GIFT Donor must have intent to make voluntary transfer. Donor must be competent. The donee must have capability The donee must take deliver of the property The donor must part dominion over the property
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CONSIDERATION Transfer of property for property If the exchanged property has the same Fair Market Value then “fair” consideration has occurred If the FMVs are not equal, then there has been a gift.
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TYPES OF GIFTS Direct Gifts Indirect Gifts Complete Gifts Incomplete Gifts Reversionary Interests Net Gifts
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NET GIFTS Gift = $10,000,000 Gift tax = $4,000,000 Total Cash Outlay = $14,000,000 =========================== Total Cash Outlay = $10,000,000 What is gift? $10,000,000/(1.4) = $7,142,857 What is gift tax $10,000,000 - $7,142,857 = $2,857,143
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NET GIFT Cash Outlay = $14,000,000 Gift Gift Tax Donor pays Tax Donee receives gift $10,000,000 Cash Outlay = $10,000,000 Gift Gift Tax Donor pays donee $10,000,000 Tax = $2,857,143 From DONEE to IRS Gift = $7,142,857 $4,000,00 0
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VALUATION OF A GIFT Fair Market Value at the date of the gift Real estate – get an appraisal
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