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Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam/Lucy Annual Exclusions- 2009
Sam LucySam’s Kids 5 5Exclusion Per Person $13,000. $13,000.
Total $65,000. $65,000.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Fact Changes
• Four of Sam’s kids are married.
• Lucy has 3 children, all married.
• Sam has 4 grandchildren
• Lucy has 3 grandchildren
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Still 2009. Now… Sam Lucy
Sam’s Kids 5 5
Sam’s In-laws 4 4
Sam’s GC 4 4
Lucy Kids 3 3
Lucy In-laws 3 3
Lucy GC 3 3
Total Bodies 22 22
Max Ann. Exc. $ 286,000 $ 286,000.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Supplemental Problem B - 2
Sam gifts $ 3.5 million to spouse Lucy
2523 gift tax marital deduction eliminates any tax exposure.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s 2009 Trusts
Sam
Trust A Trust B
Kids,Descendants
$1.8 millInvestments
$500,000
Income Income
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s 2009 Gift Tax Liability
Value of 2005 Gifts $2,300,000.
Prior gifts (Mar. Ded.) 0
Taxable Gifts 2,300,000
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s 2009 Gift Tax Liability
Value of 2005 Gifts $2,300,000.
Prior gifts 0.
Taxable Gifts 2,300,000.
Tax Computation:
780,800 + (300,000 x .45) = 915,800.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s 2009 Gift Tax LiabilityValue of 2009 Gifts $2,300,000.
Prior gifts 0.
Taxable Gifts 2,300,000
Tax Computation:
780,800 + (300,000 x .45) = 915,800
Unified Credit (345,800)
Gift Tax 570,000
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Lucy Consents to Split 2009 Gift Lucy SamTaxable Gift 1,150,000 1,150,000Tax Calculation: 345,800 + (150,000 x .41) = 407,300 407,300 Unified Credits (345,800) (345,800) Gift Tax 61,500 61,500 Tax savings: $447,000 (77%)
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Lucy’s Credit Trust
Lucy Estate2009 Death
SamCredit Trust
for Sam
$3.5 million$.5 million
Children
RemainderResiduary
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s Estate Tax – 2011 Death
No Credit Trust Credit Trust
Estate Value $9,500,000. $6,000,000.
2005 Gift Taxes 570,000. 570,000.
Post 76 Gifts 2,300,000. 2,300,000.
Taxable Estate 12,370,000. 8,870,000.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Sam’s Estate Tax – 2011 Death
No Credit Trust Credit Trust
Taxable Estate 12,370,000. 8,870,000.
Tentative Tax 5,447,300. 3,872,300
Tax on Prior Gifts
of $2.3 million, net
unified credit (570,000) (570,000)
Unified Credit (1,455,800) (1,455,800)
Estate Tax 3,421,500. 1,846,500.
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Dead or Endangered Credits
• Section 2012: Credit for Gift Tax – Applies only to pre-’77 gifts. Obsolete.
• Section 2011: Credit for State Death Taxes:
Applicable Percentage:
2002 – 75%
2003 – 50%
2004 - 75%
2005 - 0 - Replaced with 2058 deduction
Law T 510 - Estate & Gift - Instructor: Dwight Drake
2013 Credit for Tax on Prior TransfersPurpose: To ease the burden of multiple tax hits triggered by multiple
deaths in short time frame.
Credit Formula:
Credit = Value of transferred Property x Estate Tax
Taxable Estate
Phase Out Percentages:
2 yrs before or after 100%
4 yrs before 80%
6 yrs before 60%
8 yrs before 40%
10 yrs before 20%
More 10 before, 2 after 0%
Law T 510 - Estate & Gift - Instructor: Dwight Drake
Problem 15 - (1) a. No return required if gross estate less than unified
credit applicable exclusion amount. 6018(a). 1.5 mill estate not required to file.
b. 1.5 mill estate may have to file if taxable gifts post 1976 reduce unified credit exclusion amount to less than 1.5k. 6018(a)(3). Also, nonresident noncitizen with estate over 60k must file. 6018(a)(2).
c. No refund of any excess credit. 2010(d).
