Upon completion of this lesson, the successful participant will be able to: Outline the structure of federal transfer taxes, describe the operation of the federal gift tax, summarize the operation of the federal estate tax, explain principles of wealth planning. | Chapter 25 Transfer Taxes and Wealth Planning 2 2 2 Learning Objectives Outline the structure of federal transfer taxes Describe the operation of the federal gift tax Summarize the operation of the federal estate tax Explain principles of wealth planning Federal Transfer Taxes Common Features: Common tax rate schedule Unified credit Prevents taxation of all but large cumulative transfer “Exemption equivalent” is taxable amount of credit Unlimited charitable deduction Unlimited marital deduction for transfers to a spouse 3 Federal Gift Tax Levied on individual taxpayers for taxable gifts completed during a calendar year Transfers subject to gift tax: Imposed on intervivos gifts, lifetime transfers of property for less than adequate consideration Imposed once a gift has been completed (occurs when donor relinquishes control of the property and donee accepts the gift) 4 Valuation Property is included in the taxable gift at its fair market value at the date of the gift Fair market value . | Chapter 25 Transfer Taxes and Wealth Planning 2 2 2 Learning Objectives Outline the structure of federal transfer taxes Describe the operation of the federal gift tax Summarize the operation of the federal estate tax Explain principles of wealth planning Federal Transfer Taxes Common Features: Common tax rate schedule Unified credit Prevents taxation of all but large cumulative transfer “Exemption equivalent” is taxable amount of credit Unlimited charitable deduction Unlimited marital deduction for transfers to a spouse 3 Federal Gift Tax Levied on individual taxpayers for taxable gifts completed during a calendar year Transfers subject to gift tax: Imposed on intervivos gifts, lifetime transfers of property for less than adequate consideration Imposed once a gift has been completed (occurs when donor relinquishes control of the property and donee accepts the gift) 4 Valuation Property is included in the taxable gift at its fair market value at the date of the gift Fair market value “the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both have reasonable knowledge of the relevant facts” 5 Temporal interests Remainders and life estates Future interests are valued at present value, calculated by estimating the time until the present interest expires Present value calculation uses the §7520 interest rate published by the treasury 6 Example of temporal interests Ben transfers $1M of stock to the Junior Trust and directs it to pay income to Junior for his life and remainder to Georgia. How is the life estate valued if Junior is 5 years-old at the time of the gift and the Section 7520 rate is 5%? 7 Federal Gift Tax Gifts specifically excluded from the gift tax Incomplete and revocable gifts Payments for support obligations or debts Contributions to political parties or candidates Medical and educational expenses paid on behalf of an unrelated individual 8 Federal Gift
