SamLucy Annual Exclusions 2009 Sam 5 Lucy 5

Sam/Lucy Annual Exclusions- 2009 Sam 5 Lucy 5 Sam’s Kids Exclusion Person $13, 000. Total $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 Sam’s In-laws Sam’s GC Lucy Kids Lucy In-laws Lucy GC Total Bodies 5 4 4 3 3 3 22 Max Ann. Exc. $ 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 $1. 8 mill Investments $500, 000 Trust A Trust B Income Kids, Descendants Law T 510 - Estate & Gift Instructor: Dwight Drake

Sam’s 2009 Gift Tax Liability Value of 2005 Gifts Prior gifts (Mar. Ded. ) Taxable Gifts $2, 300, 000. 0 2, 300, 000 Law T 510 - Estate & Gift Instructor: Dwight Drake

Sam’s 2009 Gift Tax Liability Value of 2005 Gifts Prior gifts Taxable Gifts Tax Computation: $2, 300, 000. 0. 2, 300, 000. 780, 800 + (300, 000 x. 45) = Law T 510 - Estate & Gift Instructor: Dwight Drake 915, 800.

Sam’s 2009 Gift Tax Liability Value of 2009 Gifts Prior gifts Taxable Gifts Tax Computation: $2, 300, 000. 0. 2, 300, 000 780, 800 + (300, 000 x. 45) = Unified Credit Gift Tax Law T 510 - Estate & Gift Instructor: Dwight Drake 915, 800 (345, 800) 570, 000

Lucy Consents to Split 2009 Gift Taxable Gift Tax Calculation: 345, 800 + (150, 000 x. 41) = Unified Credits Gift Tax Lucy 1, 150, 000 Sam 1, 150, 000 407, 300 (345, 800) 61, 500 Tax savings: $447, 000 (77%) Law T 510 - Estate & Gift Instructor: Dwight Drake

Lucy’s Credit Trust Lucy Estate 2009 Death $. 5 million $3. 5 million Credit Trust for Sam Remainder Residuary Children Law T 510 - Estate & Gift Instructor: Dwight Drake

Sam’s Estate Tax – 2011 Death Estate Value 2005 Gift Taxes Post 76 Gifts Taxable Estate No Credit Trust $9, 500, 000. 570, 000. 2, 300, 000. 12, 370, 000. Law T 510 - Estate & Gift Instructor: Dwight Drake Credit Trust $6, 000. 570, 000. 2, 300, 000. 8, 870, 000.

Sam’s Estate Tax – 2011 Death No Credit Trust 12, 370, 000. 5, 447, 300. Taxable Estate Tentative Tax on Prior Gifts of $2. 3 million, net unified credit (570, 000) Unified Credit (1, 455, 800) Estate Tax 3, 421, 500. Law T 510 - Estate & Gift Instructor: Dwight Drake Credit Trust 8, 870, 000. 3, 872, 300 (570, 000) (1, 455, 800) 1, 846, 500.

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 Transfers Purpose: To ease the burden of multiple tax hits triggered by multiple deaths in short time frame. Credit Formula: Credit = Value of transferred Property Taxable Estate Phase Out Percentages: 2 yrs before or after 4 yrs before 6 yrs before 8 yrs before x Estate Tax 100% 80% 60% 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. 5 k. 6018(a)(3). Also, nonresident noncitizen with estate over 60 k must file. 6018(a)(2). c. No refund of any excess credit. 2010(d). Law T 510 - Estate & Gift Instructor: Dwight Drake