4 Transferor Provisions Students

4 Transferor Provisions Students - FEDERAL ESTATE TAX...

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FEDERAL ESTATE TAX CHAPTER 4 PROPERTY TRANSFERRED BY THE DECEDENT DURING LIFE
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Taxable Gift $400,000 Gift tax $188,000 Property $900,000 Gross Estate Adjusted Taxable Gift Retains income for life $500,000 Remainderman $0 Credit for gift tax $188,000 FMV @ Death Section 2036: Retained Life Estate Grantor Trust
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§ 2036 Transfers with Retained Life Estate (a) General rule The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death— (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom .
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§ 2036: Transfers with a Retained Life Estate Include in gross estate if decedent 1. Was transferor 2. Transferred property and in return receives less than adequate consideration 3. Retains certain rights Possession, enjoyment, or right to income Right to designate possession or enjoyment Administrative powers, voting rights (20%, 3 yr) 4. Retains such rights for certain period : Life Period not ascertainable w/o ref to transferor's death Period that does not in fact end before his death 2,3
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Reg. § 20.2036-1(b)(1)(i) Example of period not ascertainable without reference to D’s death: “A decedent reserved the right to receive the income from transferred property in quarterly payments, with the proviso that no part of the income between the last quarterly payment and the date of the decedent’s death was to be received by the decedent or his estate.”
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If § 2036(a)(1) or (a)(2) applies, the value of the entire underlying property, not just the value of the income interest is included in D’s gross estate. § 2036 has this result even if the remainder interest had been subject to gift tax during decedent’s life. § 2036 has effect of taxing appreciation in corpus as well as making the transfer tax tax-inclusive. The analogy Congress accepted, rightly or wrongly, was to D retaining the property outright and living off the income rather than the analogy of D purchasing an annuity that terminates at his death. Effects of § 2036
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Problem 3
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Estate of Lydia Maxwell (CA-1993) 82, cancer Note $270,000, forgives $20,000 AB $50,000 Son (only heir) Daugh-in-law “sells” home Interest only $1,800 Rent leases back Cancels entire note Sells house for $550,000 $1,800
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Sprinkle: 2036(a)(2)
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§ 2036(a)(2): Nonbeneficial Power Applies if D retained for life, for any period not ascertainable without reference to his death or for any period which does not in fact
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This note was uploaded on 06/23/2009 for the course BUPA 516 taught by Professor Kulsrud during the Spring '09 term at IUPUI.

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4 Transferor Provisions Students - FEDERAL ESTATE TAX...

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