Chapter_17_notes - 1 The Federal Gift and Estate Taxes updated Learning Objectives Understand the general nature of the Federal gift estate tax

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1 The Federal Gift and Estate Taxes updated: August 15, 2011 Learning Objectives: Understand the general nature of the Federal gift & estate tax Work with the Federal gift tax formula Understand the requirements for a taxable gift Work with the Federal estate tax formula Understand the definition of the gross estate Determine the deductions from the gross estate Review the rules for determining basis of property received by gift & inheritance Appreciate the role of the GSTT Understand different types of property interests & forms of co-ownership I. Transfer Taxes – Overview A. Since 1976 all gratuitous transfers are currently subject to a unified transfer tax which includes: 1. the estate tax (although it has been in existence since 1916) 2. the gift tax (although it has been in existence since 1932) 3. the generation-skipping transfer tax (GSTT) Note: Transfer taxes have a limited impact – produce about 1% of total revenue for the Federal government & affect around 1% of individual taxpayers. Note: Prior to 1976, transfer taxes were disjointed. For example, the estate tax has been around for nearly as long as the individual income tax (1913), but it was not coordinated with the gift tax. Different rates & credits applied. B. Gift tax 1. tax on intervivos transfers (transfers during the lifetime) for less than full and adequate consideration 2. payable by the donor (after considering the annual exclusion & the lifetime unified credit) C. Estate tax 1. tax on testamentary transfers (transfers at death) dictated by decedent’s last will and testament (or state law) 2. imposed on decedent’s entire estate 3. tax on the right to pass property at death 4. essentially, the decedent’s final taxable gift
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2 D. What is the purpose of the Federal transfer tax system? The intent of the transfer tax system is the redistribution of wealth – from the private domain to the public domain – in order to avoid the concentration of wealth in a few families. This helps explain the unlimited charitable contribution allowed in both the gift tax and the estate tax. Note: This also helps to reconcile two opposing views on taxes – some individuals want to cut your taxes and some want to raise your taxes. Both see the benefit of spending money to stimulate and grow the economy. They just disagree on who is in the best position to be making the spending/investment decisions. Advocates of tax cuts think that private citizens are best suited to make the decision. They want to put more money back in individuals’ hands to spend and invest. The private sector makes the “best” decisions. Advocates of tax increases think that government is best suited to make the decision. They want to put more money in governments’ hands (the public) to spend and invest. The governmental sector makes the “best” decisions.
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3 E. Tax planning and uncertainty – Both the estate tax and the GSTT were repealed (effective January 1, 2010), but for only 1 year since the changes introduced in the Tax Act of 2001 are subject to a “sunset” provision.
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.

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Chapter_17_notes - 1 The Federal Gift and Estate Taxes updated Learning Objectives Understand the general nature of the Federal gift estate tax

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