C 12-10 What is the purpose of the gift tax annual exclusion? The annual exclusion was enacted for administrative simplicity to keep “routine” gifts (e.g. birthday, wedding, Christmas gifts) from needing to be reported for gift tax purposes. Pages 12-16 through 12-18. C 12-11 In what circumstances do gifts fail to qualify for the annual exclusion? Gifts of future interest are not eligible for the annual exclusion. In addition only the first $14,000 of gifts to a donee each year are eligible for the exclusion. Pages 12-16 through 12-18 C 12-12 Compare and contrast a Sec 2503© trust and Crummey Trust. Both trusts are eligible for the annual exclusion. Section 2503© trusts can be created only for the benefit of minors and, in general, must terminate when the beneficiary reaches age 21. Crummey trusts can be created for beneficiaries of any age, and the donor has complete flexibility in specifying the termination date of the trust. Both trusts are discretionary trusts. A beneficiary of a Crummey trust has the power to demand each year that the trustee distribute the lessor of (1) an amount specified by the donor or (2) the amount transferred to the trust that year. Pages 12-16 through 12-18. C 12-13 From a nontax standpoint, would a parent probably prefer to make a transfer to a minor child by using a Sec 2503 © trust or a Crummy trust?
A parent would likely prefer to use a Crummey trust because the grantor has the freedom to choose the termination date. A section 2503 © trust must generally end when the beneficiary attains age 21. Pages 12-16 through 12-18. C 12-14 Explain the requirements for classifying a transaction as a transfer of a qualified terminable interest property (QTIP). The requirements for a qualified terminable interest transfer are that the donee spouse be entitled to receive all the income for life and that the income be paid out at least annually. In addition, nobody can have a power to appoint any part of the property to anybody other than the donee-spouse unless such power is not exercisable while the donee-spouse is alive. Finally, the donor must elect to claim a martial deduction. Pages 12-19 C 12-15 Why do some donors consider the qualified terminable interest property (QTIP) transfer an especially attractive arrangement for making gifts to their spouses? Some donors find a QTIP arrangement especially attractive because it enables them to receive a marital deduction (which results in their transfer being nontaxable) and also permits them to control who will receive the property upon the donee spouse’s death. Pages 12-19 C 12-16 A client is under the impression that a donor cannot incur a gift tax liability if he or she makes gifts only to US charitable organizations. What should you say to that client? The client is misinformed. You should advise the client that a donor can incur a gift tax liability as a result of making a gift to a US charitable organization because some gifts to charitable organizations do not qualify for a charitable contribution deduction. In the case of split interest transfers of remainder
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- Fall '15
- Taxation in the United States, taxable gifts