©2015, College for Financial Planning, all rights reserved.

Session 4The Federal Gift Tax

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning

Session Details

4-2

Module 4

Chapter(s)

2

LOs 4-4 Analyze a situation to identify transfers included in total gifts, and/or deductions that are available in calculating taxable gifts.

4-5 Analyze a situation to calculate the federal gift tax.

Determining Gift Tax Liability• Affects only gratuitous lifetime transfers

• Exempt from gift taxo Political contributionso Direct and exclusive payment of medical and

tuition expenses• Was it a completed transfer?

o Donor must part with dominion and controlo Transfer to a revocable trust is not completeo Transfer to an irrevocable trust

not complete if donor can• Add additional beneficiaries• Delete an existing beneficiary• Alter beneficiary’s right to trust assets

4-3

Determining Gift Tax Liability continued

Gift Splitting• Donor must have spouse; if subsequently

divorced, must not remarry in same year• Spouses must be a citizen or resident

alien• Consenting spouse must not have a GPOA• Cannot split if gift is to spouse• Both spouses must consent to split• If one gift is split, all gifts for

the year by both spouses must be split

4-4

Determining Gift Tax Liability continued

Annual Exclusions

• Donee must have a present interest (PI)

• Count the number of donees with a PI

• Deduct the lesser of the value of all present interests, or the maximum annual exclusion for year of completion of each PI gift

4-5

Determining Gift Tax Liability

Marital Deduction• Is property included in the decedent’s

(DC) GE (ET) or total calendar year gifts (GT)?

• Does property pass to transferor’s spouse?

• For GT, must be a completed gift, and donor’s spouse is donee

4-6

Determining if Asset is Entitled to Marital Deduction

continued

Is the property a non-terminable interest or

a deductible terminable interest?• Definition of terminable interest

o Transferor has given someone other than spouse an interest in the same property; and

o Spouse cannot control where the property will go after his/her interest ends or fails

• Examples of a terminable interest:o Spouse receives an income interest in trust for term

certaino Life estate w/o GPOA or QTIP election

4-7

Determining if Asset is Entitled to Marital Deduction

continued

Is the property a non-terminable interest or a deductible terminable interest?• Exceptions to terminable interest rule (aka deductible

terminable interests):o Life estate + GPOA or QTIP electiono Spouse is sole income beneficiary in CRAT/CRUT

(exception for grantor)o QTIP with an election

• Example of a non-terminable interest not in trust:o Life estate + GPOA or QTIP election

• Examples of non-terminable interests in trust:o Estate trusto General power of appointment trusto QTIP trust with an election

4-8

Determining if Asset is Entitled to Charitable Deduction

Prerequisites

• Qualified charity

• Donation of cash or property

• Gratuitous completed transfer

• If partial interest, must be in approved form

• Asset must be in donor’s total calendar year gifts (GT)

4-9

Determining if Asset is Entitled to Charitable Deduction continued

Remember• Deduction only for excess of value given

over that received• Entitled to annual exclusion first for gift of

a present interest (GT only)• Formula: Tax on total taxable gifts, minus

tax on prior taxable gifts, equals tax on current taxable gifts

4-10

Life &Times of Jose O’Shea

Following is a complete listing of José O'Shea's gifts (all made on January 2 in

years shown):

Compute the gift tax for each gift.

4-11

• gave his wife a life estate (valued at $450,000) in a condominium (no QTIP election)

• transferred residence worth $1,000,000 into his and his 3 children's names as JTWROS

• transferred a $500,000 face value insurance policy on his life plus $50,000 in income-producing property to an ILIT

• José's wife is the income beneficiary (at the discretion of the trustee); José's three children are equal remaindermen

• no beneficiary has a Crummey power; replacement value of the policy was $70,000

Federal Gift Tax Worksheet 2002 Gift

(1) Total calendar-year gifts(a) Gifts made by the donor $450,000(b) One-half of gifts split with spouse 0(c) Adjusted gifts of donor (line 1a minus line 1b) 450,000(d) One-half of gifts spouse split with donor 0(e) Total calendar-year gifts (line 1c plus line 1d) $450,000

(2) Subtractions (exclusions and deductions)(a) Annual exclusions allowable 11,000(b) Marital deduction (after annual exclusion) 0(c) Charitable deduction (after annual exclusion) 0(d) Total subtractions (line 2a plus lines 2b and 2c) $11,000

(3) Taxable gifts for the calendar year (line 1e minus line 2d) 439,000(4) Prior taxable gifts 0(5) Total taxable gifts (line 3 plus line 4) 439,000(6) Total tentative tax (tax computed on line 5) 135,060*(7) Prior tentative tax (tax computed on line 4) 0(8) Current tentative tax (line 6 minus line 7) 135,060(9) Available applicable credit

(a) Maximum applicable credit for current year 345,800**(b) Applicable credit used in prior years 0(c) Applicable credit available (line 9a minus 9b) 345,800

(10) Net federal gift tax for the calendar year (line 8 less line 9c) 0*Computed using 2002 rates **2002 credit amount using 2002 rates

4-12

Federal Gift Tax Worksheet 2003 Gift

(1) Total calendar-year gifts(a) Gifts made by the donor 750,000(b) One-half of gifts split with spouse 0(c) Adjusted gifts of donor (line 1a minus line 1b) 750,000(d) One-half of gifts spouse split with donor 0(e) Total calendar-year gifts (line 1c plus line 1d) 750,000$

(2) Subtractions (exclusions and deductions)(a) Annual exclusions allowable 33,000(b) Marital deduction (after annual exclusion) 0(c) Charitable deduction (after annual exclusion) 0(d) Total subtractions (line 2a plus lines 2b and 2c) 33,000$

(3) Taxable gifts for the calendar year (line 1e minus line 2d) 717,000(4) Prior taxable gifts 439,000(5) Total taxable gifts (line 3 plus line 4) 1,156,000(6) Total tentative tax (tax computed on line 5) 409,760*(7) Prior tentative tax (tax computed on line 4) 135,060*(8) Current tentative tax (line 6 minus line 7) 274,700(9) Available applicable credit

(a) Maximum applicable credit for current year 345,800**(b) Applicable credit used in prior years 135,060(c) Applicable credit available (line 9a minus 9b) 210,740

(10) Net federal gift tax for the calendar year (line 8 less line 9c) 63,960 *Computed using 2003 rates **2003 credit amount using 2003 rates

4-13

Federal Gift Tax Worksheet 2015 Gift

(1) Total calendar-year gifts(a) Gifts made by the donor $120,000(b) One-half of gifts split with spouse 0(c) Adjusted gifts of donor (line 1a minus line 1b) 120,000(d) One-half of gifts spouse split with donor 0(e) Total calendar-year gifts (line 1c plus line 1d) 120,000$

(2) Subtractions (exclusions and deductions)(a) Annual exclusions allowable 0(b) Marital deduction (after annual exclusion) 0(c) Charitable deduction (after annual exclusion) 0(d) Total subtractions (line 2a plus lines 2b and 2c) -$

(3) Taxable gifts for the calendar year (line 1e minus line 2d) 120,000(4) Prior taxable gifts 1,156,000(5) Total taxable gifts (line 3 plus line 4) 1,276,000(6) Total tentative tax (tax computed on line 5) 456,200*(7) Prior tentative tax (tax computed on line 4) 408,200*(8) Current tentative tax (line 6 minus line 7) $48,000(9) Available applicable credit

(a) Maximum applicable credit for current year 2,117,800**(b) Applicable credit used in prior years 408,200*(c) Applicable credit available (line 9a minus 9b) 1,709,600

(10) Net federal gift tax for the calendar year (line 8 less line 9c) 0 *Computed using 2015 rates **2015 credit amount using 2015 rates

4-14

Question 1

Only direct transfers of present interests are completed transfers that are taxable for federal gift tax purposes.

TrueFalse

4-15

Question 2

“Gift splitting” means that spouses may file a joint gift tax return.

TrueFalse

4-16

©2015, College for Financial Planning, all rights reserved.

Session 4End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning