1. Overview of Estate/Gift Tax Unified Rate Schedule Single unified transfer tax applies to estates/gifts (post 12/76) – until 2003 why? Rates range from 18% to 45% on cumulative lifetime transfers (see table on inside flap) Rates scheduled to decrease until 2010 What about repeal? Unified credit essentially results in the minimum out of pocket rate of 45%. Refer to the Unified Rate Schedule in the flap of the CCH Estate & Gift Taxes Explained Do you know how this 45% minimum was determined?

2. Unified Rate Schedule - Gifts Gift purposes Calculate lifetime (cumulative) taxable gifts Compute tax using the unified rate schedule Subtract tax on cumulative gifts prior to current year. Result in current years gift tax Why is this method used? Why not simply do it on a year by year basis using the table?

3. Unified Rate Schedule - Estates Apply rates schedule to estate tax base Estate tax base = taxable estate + all taxable gifts made after 1976 (other than gifts included in the gross estate) Why do we add the previous taxable gifts? Estate tax before credits = Tax on the estate tax base Less: gift tax payable on the gifts included using the current rate structure Credits (unified credit/foreign tax credit) are subtracted to arrive at estate tax due.

4. Unified Credit One time credit against taxes paid on wealth transfers both in life and at death. Applies to cumulative life transfers The credit is not a refundable credit. What is a refundable credit? Credit will be increased to $1,455,800 over the next 8 years = $3.5 Million exclusion. In 2008 it is $780,800 for a total exclusion of $2,000,000.

5. Filing Requirements - Estates and Gifts When is the estate and gift tax returns (Form 706 and 709) due? Does every person who dies have to file this form? What triggers the need to file a gift tax return? What is the essence of the generation skipping transfer tax?

6. Gift Tax Returns- Must be filed IF: The donor gave taxable gifts to any donee other than the donor’s spouse  What are taxable gifts? The donor gave gifts to charity unless the donor transfers entire interest and the property is used for a charitable purpose only  Is this the only place charitable gifts are recorded? Election of Gift splitting / Gift of terminable interest to spouse. Gift taxes not scheduled for repeal

7. Estate and Gift Tax Returns Returns - Forms Required What form is used to report and pay the estate tax of U.S. Citizens or residents? Form 706-NA - used for nonresidents, non citizens Form 706-A - used to report recapture of tax benefits previously enjoyed under Sec. 2032A elections When must the estate tax return be filed? Who must file an estate tax return? Do Non-resident aliens need to file an estate return?

8. Gift Tax What is the gift tax? In general what is a gift? On whom is the gift tax levied? In general how is the gift tax calculated? When is the gift tax due? How are gifts reported? How does the unified credit apply to gifts?

9. Gift taxes (continued) What is a disclaimer? What is the essence of a disclaimer – see page 311. Does a gift exist when a joint tenancy with right of survivorship is created? Does it matter if the joint tenancy is between spouses or is created as a tenancy by the entirety

10. Gifts (continued) What are taxable gifts? How does the annual exclusion factor into the calculation of taxable gifts? Do transfers in Settlement of Support Obligations constitute taxable gifts? How are gifts valued? Is there an alternate valuation date available for gifts? What is gift splitting and how is it operationalized?

11. Gift Taxation (continued) What amounts reduce the amount of gifts subject to tax? What are the steps involved in calculating gift tax? Why do these steps make sense? If a married couple gives $24,000 to their child, do they have to file a gift tax return? What documentation must be included to support the valuation of property?

12. Gifts - valuation How are gifts valued? Real estate? / Business Interests? / Mortgages? Stocks and Bonds? Household effects? / Other property? How are reversionary interests treated for gift purposes? How are gifts of life insurance contracts valued?

13. Gifts - Annuities What are net gifts? Are transfers for consideration considered gifts? Are transfers in settlement of marital rights considered gifts?

14. Taxable gifts What are the elements of a gift? Go over the list of specific types of transfers that are classified as gifts – page 331. Are gifts to political organizations gifts. What about inter-spousal transfers? How are below market rate loans treated? What are the gift tax implications? What are the income tax implications?

15. Gift Taxation (continued) How are annuities valued for gift tax purposes? Gratuitous purchase of an annuity contract is a gift if the purchaser retains no rights in the contract. Creation of an annuity in a trust or other property constitutes a taxable gift. A taxable gift is also made when a person establishes an annuity for his or her own benefit and irrevocably names another to receive certain benefits that may be payable after the annuitants deaths U.S. savings bonds - Simply naming beneficiary for post death is not a gift.. A gift does exist when you buy the bond in someone else name.

16. Gifts (continued) What is required to have a completed gift? What is dominion and control – see page 340? How does dominion and control impact whether a gift exists? Give some examples where dominion and control impact the timing of a gift? What estate tax provisions does this sound like? Do gifts for medical and educational purposes qualify for the $12,000/$13,000 gift tax exclusion. When does a gift tax return not have to be filed?

17. Gift-Splitting Must be elected annually on form 709 Gift splitting requires that each spouse file a separate 709 – Go over example on page 340 Equalizes the difference between separate property and community property in community property states. Donor must be married at the time of the gift. Each spouse must a citizen or resident at the time of the gift.

18. Annual Exclusion ($12K per donee) $13K per donee - 2009 What gifts does it apply to? How many exclusions can a donor take per donee? Under what conditions does it not apply to educational and medical expenses? What qualifies as medical expenses? What about QTP (page 349?) Gifts by check may be a problem, why? What are future interests – pg. 351 Gifts of income that commence immediately, are gifts of a present interest. What are Crummey trusts? Gifts to a minor are not a future interest if the property and income as long as property & income will be dist at 21.

19. Deductions and Exemptions Gifts to qualified charities are deductible for gift tax purposes see page 357. Special rules exist for the Sec. 507 private foundation termination tax. Similar treatment for charitable deductions when dealing with remainder interests. Marital Deduction - unlimited for non-terminable interest property Special rules for alien spouses (128K) annually Special rules for TIP - exception QTIP – p 360

20. Generation Skipping Tax What is the purpose of the Generation Skipping Tax? GST only applies to direct beneficial interests. What are direct beneficial interests? What interests are excluded? What is a generation skipping transfer (Sec. 2611)? On what transfers do these provisions apply? (Sec. 2612) – Page 373-75 Taxable distribution Taxable Terminations Direct Skips

21. GST (continued) What is the general definition of a skip person (Sec. 2613)? Who is a skip person for purposes of a trust? How are non-lineal descendents assigned to generations for GST purposes (Sec. 2651)? What is the special rule in the case of deceased parents?

22. Return Requirements Lifetime direct skips - reported on form 709 - gift tax return - due April 15 GST occurring at death - GST calculated as part of the form 706. If from a trust - File form R-1. Generation skipping trusts must file forms 706GS to report trust distributions that are subject to the GST.