Overview and Taxable Estate Estate & Gift Taxation Overview and Taxable Estate

Estates subject to tax. Estate tax applies to: estate of any person who dies leaving property having a taxable situs within the U.S. Gross estate = FMV of all ownership interests by the decedent - includes real, personal, tangible, intangible property, wherever situated Deductions allowed in computing Taxable estate: Funeral and administrative expenses (incl. executor fees) Liabilities of the decedent Bequest to spouse Charitable bequests (qualified charitable organizations)

Taxable Estate Similar to balance sheet: subtract liabilities from assets, leaving decedent’s net wealth (equity) FMV of Assets – NPV of liabilities = taxable estate Plus: lifetime taxable gifts = Estate tax base Less: transfer tax exclusion* ($5,430,000 for 2015) Times 40% (flat rate on amount above exclusion) Tax Due Less than 1% of population will pay wealth transfer tax. * Technically, the entire taxable estate is multiplied by the tax rate schedule, and the estate is allowed a “unified credit” which offsets the tax liability on the first $5,430,000 of the value of the estate.

Income Tax Basis of Inherited Property FMV at date of death. Special rules apply to gifts being returned to the original donor within one year of the original gift - basis in hands of decedent immediately before dying. No step up in basis for retirement accounts. Basis in property received by gift is donor’s carryover basis (not FMV of property at date of gift).