Estate Planning | V. Gift Tax

The Gift Tax System

Historical Background and Purpose

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) was set on repealing the restate tax over a nine year period ending in 2010. The Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 extended the EGTRRA through December 31, 2012.

Estate and Gift Tax Reform

Tax Rate Schedule for Gifts and Estates (2011)

Amount Tax Rate

Estate and Gift Tax Rates and Credit Exemption Amounts For 2004-2012

Year Estate & GST Exclusion Amount Gift Tax Exclusion Highest Tax Rate
2011 $5,000,000 $5,000,000 35%
2012 $5,000,000 $5,000,000 35%

Characteristics of a Gift

Parties:
Donor - the person who makes the gift
Donee - the person who receives the gift

Definition of a gift:
A gift is a voluntary transfer, for less than full consideration, of property from one person to another person or entity.

Elements of a Gift

Consideration

Consideration is the value of property transferred in return for other property

Types of Gifts

Direct Gifts
Indirect Gifts

Summary of Imputed Interest on Gift and Below Market Loans

Complete and Incomplete Transfers
Revisionary Interests - interest in property that have been transferred away and subsequently revert back to the grantor.

Valuation of a Gift

The value of a gift for gift tax purposes is equal to the fair market value of the gifted property on the date of the gift. For real estate, an appraisal is usually neessary to determin the fair market value of the property.

Exclusions and Exemptions

Annual Exclusion

All individuals may gift, transfer-tax free, up to $14,000 (2015) per donee per year to a related or unrelated party.

Split Gift Elections

Gifts of Community and Joint Property

The Applicable Credit Amount

In

Gifts of a Present and Future Interest

Present Interest Gift

A gift can be a gift of a present interest or a gift of a future interest. Only a present interest gift will qualify for the annual exclusion.


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