Chapter
1 Chapter 12: The Gift Tax
THE GIFT TAX Unified transfer tax system Transfers subject to gift tax Annual exclusion Deductions Gift-splitting Tax computation
2 THE GIFT TAX Unified transfer tax system Transfers subject to gift tax Annual exclusion Deductions Gift-splitting Tax computation
Unified Transfer Tax System Excise tax imposed on transfer of wealth when adequate consideration not received as part of exchange Components of transfer tax system Purpose of transfer taxes Tax on wealth transfers Cumulative and progressive tax 3
3 Unified Transfer Tax System Excise tax imposed on transfer of wealth when adequate consideration not received as part of exchange Components of transfer tax system Purpose of transfer taxes Tax on wealth transfers Cumulative and progressive tax
Components of Transfer Tax System Gift tax: Inter vivos transfers Transfers while alive Estate tax: Testamentary transfers Property ownership transfers at death Generation-skipping transfer tax Property transferred to a second or younger generation
4 Components of Transfer Tax System Gift tax: Inter vivos transfers –Transfers while alive Estate tax: Testamentary transfers –Property ownership transfers at death Generation-skipping transfer tax –Property transferred to a second or younger generation
Purpose of Transfer Taxes Raise revenue for federal government Prevent evasion of estate tax Recover revenues lost by shifting assets to taxpayer in lower income tax bracket Redistributing wealth 5
5 Purpose of Transfer Taxes Raise revenue for federal government Prevent evasion of estate tax Recover revenues lost by shifting assets to taxpayer in lower income tax bracket Redistributing wealth
Tax on Wealth Transfers Gifts inheritances Not income Person making gift has PRIMArY obligation to pay any tax due Tax applies to act of transferring property Tax applied against FMV of gift 6
6 Tax on Wealth Transfers Gifts & inheritances NOT income Person making gift has PRIMARY obligation to pay any tax due Tax applies to act of transferring property Tax applied against FMV of gift
Cumulative Progressive Tax All taxable gifts made after 1976 accumulated for each donor Cumulative total determines tax rate applied to current gift Prior gift taxes paid and/or unified credit may negate or reduce amount of current tax due
7 Cumulative & Progressive Tax All taxable gifts made after 1976 accumulated for each donor Cumulative total determines tax rate applied to current gift Prior gift taxes paid and/or unified credit may negate or reduce amount of current tax due
Transfers Subject to Gift Tax (1 of 3) Transfers for inadequate consideration Transfer of cash, stock securities or real estate Forgiveness of debt -Assignment of a life insurance policy Transfer of federal, state, or municipal bonds Transfer of other assets
8 Transfers Subject to Gift Tax(1 of 3) Transfers for inadequate consideration –Transfer of cash, stock, securities or real estate –Forgiveness of debt –Assignment of a life insurance policy –Transfer of federal, state, or municipal bonds –Transfer of other assets
Transfers Subject to Gift Tax (2 of 3 Transfers NOT subject to gift tax Transfers in normal course of business Qualified transfers for direct payment of educational tuition or medical care Transfers to political organizations Property settlements in divorce Transfers disclaimed by recipient Incomplete transfers 9
9 Transfers Subject to Gift Tax(2 of 3) Transfers NOT subject to gift tax –Transfers in normal course of business –Qualified transfers for direct payment of educational tuition or medical care –Transfers to political organizations –Property settlements in divorce –Transfers disclaimed by recipient – Incomplete transfers
Transfers Subject to Gift Tax (3 of 3 Completed transfers Gift does not occur until transfer is complete Transfer complete when donor has given up"dominion control >Leaves donor no power to change gifts disposition, Whether for own benefit or for benefit of another Gift valued upon transfer 10
10 Transfers Subject to Gift Tax(3 of 3) Completed transfers –Gift does not occur until transfer is complete –Transfer complete when donor has given up “dominion & control »Leaves donor no power to change gift’s disposition, whether for own benefit or for benefit of another –Gift valued upon transfer
