Gifts (Portfolio 845)

Part of Tax

Tax Management Portfolio, Gifts, No. 845-3rd, discusses the definition of “taxable gift” and analyzes when a transfer subject to the gift tax occurs.

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Tax Management Portfolio, Gifts, No. 845-3rd, discusses the definition of “taxable gift” and analyzes when a transfer subject to the gift tax occurs. Donative intent on the part of the transferor is not required for the transfer to be a taxable gift. Instead, an objective test determines whether a gift has been made: did the transferor receive sufficient consideration for the transfer? The gift tax applies to direct gifts of property, transfers in trust, and transfers of real, personal, tangible, and intangible property, and it also applies to indirect gifts such as the payment of another's expenses (except for certain expenses such as tuition and medical) and interest-free loans.
This Portfolio discusses general principles relating to completed transfers, incomplete transfers, transfers involving married persons, and transfers of community property. Special problems can arise upon the exercise or lapse of certain powers of appointment and in connection with jointly held properties, and Gifts describes gift tax implications that the practitioner should consider before advising the creation or exercise of a power or creating or severing a joint-property relationship.
Principal portions of this Portfolio pertain to valuations, the special valuation rules under Chapter 14, transfers subject to liabilities, application of the §2503 exclusions, the distinction between present and future interests, gifts of life insurance, gifts to minors, the gift tax marital and charitable deductions, and computation of the gift tax.
For additional relevant Tax Management Portfolios, check the “Estates, Gifts, and Trusts Portfolio Classification Guide” in the Tax Management Portfolio Index binder.
This Portfolio may be cited as Lischer, 845-3rd T.M., Gifts.


Henry J. Lischer, Jr.

Henry J. Lischer, Jr., University of Iowa, B.B.A. (1967), J.D. (1970); New York University, LL. M. (in Taxation) (1974); Judge Advocate, U.S. Marine Corps (1970–73); Associate, Lillick, McHose & Charles, Los Angeles, California (1974–75); Professor of Law, University of Alabama (1975–78); Professor of Law, Southern Methodist University (1978–2010); Professor-in-Residence, Office of Chief Counsel, Internal Revenue Service, Washington, D.C. (1984–85); Fellow, American College of Tax Counsel (1987–2010); Academic Fellow, American College of Trust and Estate Counsel (2002–08).

Table of Contents

Detailed Analysis

I. Overview of Federal Gift Tax

Introductory Material

A. Description of Gift Tax

B. Historical Background

1. Pre-Tax Reform Act of 1976

2. Post-1976 Unified Transfer Tax System - Relationship Between Gift and Estate Tax

3. Economic Recovery Act of 1981

4. Tax Reform Act of 1984

5. Technical and Miscellaneous Revenue Act of 1988

a. Gifts to a Non-Citizen Spouse

b. New Valuation Tables

6. Omnibus Budget Reconciliation Act of 1989

7. Omnibus Budget Reconciliation Act of 1990

8. Revenue Reconciliation Act of 1993

9. Taxpayer Relief Act of 1997

10. Economic Growth and Tax Relief Reconciliation Act of 2001

C. Relationship Between Gift Tax and Income Tax

II. Persons Subject to Gift Tax

Introductory Material

A. Residents and Citizens of the United States

B. Nonresident Aliens

III. Definition of Taxable Gift

A. Transfer of Property for Less than Adequate and Full Consideration Is Deemed a Gift

B. Donative Intent Not Required to Establish a Taxable Gift

C. Adequate and Full Consideration in Money or Money's Worth

1. Equality of Value Transferred and Received

2. Money's Worth Consideration

3. Transfers Incident to Divorce

4. Payment of Medical and Tuition Expenses of Donee

D. Part-Gift, Part-Sale Transactions

E. Transfers Made in Ordinary Course of Business Are Not Within Scope of the Gift Tax

F. Failure to Exercise Discretionary Rights May Result in Taxable Gift

1. Overview

2. Failure to Demand Payment on Loan

3. Failure of Preferred Shareholder to Require Payment of Dividends May Result in Gift to Common Shareholders

4. Failure to Exercise Discretionary Rights

5. Failure by Income Beneficiary of Trust to Exercise Power to Make Unproductive Property of Trust Productive Results in Gift to Remainder Beneficiaries

G. Payment of Income Tax by Person Deemed Owner of Grantor Trust

H. Section 2511(c) Transfers

IV. Completion of a Gift: Relinquishment of Dominion and Control over Transferred Property

A. General Principles

1. Gift Tax Imposed Only on Completed Transfers

2. Transfer Is Complete When Donor Has Relinquished Dominion and Control

3. IRS "Open Transaction" Position that Completed Gift Is Not Accounted for Until Reasonably Susceptible of Valuation

4. Ascertainable Standards

5. Effect of State Law

6. Formalities of Transfer - Delivery of Transferred Property to Donee

a. Effective Delivery of Gift Generally Indicates Donor's Relinquishment of Dominion and Control

b. Constructive Delivery to Third Person as Agent of Donor or Donee

7. Transfer of Proper Interest to Proper Transferee

B. Completed Transfers

1. Gifts in Trust

a. Irrevocable Transfers in Trust with No Retained Powers in Donor

b. Irrevocable Transfer in Trust over Which Donor Retains Power Only to Change Manner or Time of Enjoyment Is Completed Gift

c. No Gift Attributable to Trustees' Exercise of Power to Adjust Trust Income for Total Return

d. Section 2511(c) for Transfers in Trust after 2009

2. Promises and Contracts to Transfer Property

a. General Rules

b. Checks

(1) General Rules as to Completion of Gift by Check

(2) Relation Back Doctrine

c. Promissory Notes and Loan Guarantees

d. Option Contracts for Sale of Property

e. Joint, Mutual, and Contractual Wills

3. Transfer Involving Rights of Survivorship Between Persons Other than Spouses

4. Nature of Property Transferred

C. Incomplete or Partially Complete Transfers

1. Revocable Transfers

a. General Rules

b. Conditional Gift

c. Gift by Minor

d. Mistake of Fact or Law

2. Transfers in Trust with Reserved Powers

a. Transfers that May Be Revoked or Amended by Grantor Alone or with Non-Adverse Party

(1) Powers that Prevent Completed Gift

(2) Substantial Adverse Interest

b. Transfers over Which Grantor Has Retained Power to Change Beneficial Interests

(1) General Rules

(2) "External" or "Ascertainable" Standards

c. Transfers of Corporate Stock with Retained Voting Rights

d. Relinquishment of Retained Power to Change Beneficial Interests

e. Transfers with Reservation of Contingent Power to Revoke or Control Beneficial Enjoyment

f. Transfers in Trust in Which Grantor Retains Income Interest

(1) Absolute Discretion in Trustee to Make Distributions to Donor Completes Transfer Unless Donor's Creditors Can Reach Trust Assets Under State Law

(2) Fixed or Ascertainable Standards

g. Powers of Revocation or Control in Third Persons

h. Power of Settlor to Replace Trustee with Independent Trustee

D. Transfers Pursuant to Power of Attorney

V. Transfers Involving Married Persons

A. Gift Tax Consequences of Transfer of Property Pursuant to Antenuptial and Separation Agreements

1. Overview

2. Transfers of Property Under Antenuptial Agreements

a. Use of Antenuptial Agreements

b. Agreement to Marry as Consideration

c. Relinquishment of Marital Property Rights as Consideration

d. Timing of Inter-Spousal Transfers to Avoid Gift Tax

e. Community Property Agreements

3. Transfers of Property Between Spouses Incident to Separation or Divorce

a. Overview

b. Exceptions to Rule that Transfers of Property Between Spouses Incident to Separation or Divorce Are Taxable Gifts

(1) Transfer of Property in Exchange for Relinquishment of Support Rights

(2) Statutory Exception - § 2516

(3) Gift Tax Does Not Apply to Payments Made Under Agreement Incorporated into Divorce Decree or Separation Agreement or Made Pursuant to Court Order

B. Application of Gift Tax to Creation and Termination of Joint Ownership Interests in Property Between Married Persons

1. Introduction

2. Creation of Survivorship Interests

a. Joint Bank Accounts, U.S. Savings Bonds, and Joint Brokerage Accounts

b. Survivorship Interests in Real Property

(1) Overview

(2) Pre-1982 Rules for Creation of Survivorship Interests Between Spouses

(3) Creation of Joint Ownership Between Spouses After 1981

c. Termination of Survivorship Interests Between Spouses

C. Donative Transfers of Community Property

1. "Community Property" Defined

2. Transfers of Community Property to Third Parties

3. Transfers Between Spouses

a. Pre-1982 Rules

b. Post-1981 Rules

c. Surviving Spouse's Election to Take Under Will of Deceased Spouse

D. Split Gifts Between Spouses

VI. Exercise or Release of Power of Appointment as Gift

A. Definition of "Power of Appointment"

1. Common Law Definition

2. Terminology

3. "Power of Appointment" as Defined in Gift Tax Regulations

B. Section 2514 Classification of Power of Appointment as "General" or "Special"

1. Overview of § 2514 Gift Tax Consequences of Classification of Powers

2. General Power of Appointment Defined

3. Power Limited by Ascertainable Standard Is Not a General Power

4. Powers Exercised by Powerholder as Trustee to Discharge Trustee's Obligation

5. Joint Powers

6. "Special" Powers

C. Gift Tax Consequences of Exercise, Release, or Lapse of Powers of Appointment

1. Date of Creation of Power

2. Exercise or Release of Post-Oct. 21, 1942, General Powers

3. Lapse of Post-Oct. 21, 1942, General Power of Appointment

a. Introduction

b. The § 2514(e) "5-and-5" Exception

4. Exercise or Release of Special Power of Appointment

5. Gift Resulting from Exercise of Special Power of Appointment by Life Beneficiary of Trust to Appoint Corpus to Another

6. Powers Created Before October 21, 1942

VII. Valuation of Gifts

A. General Principles

1. Time of Valuation

2. General Standard for Determining Value of Property

B. Annuities, Life Estates, Terms for Years, Remainders, and Reversions

1. IRS Actuarial Tables

a. Overview

b. Use and Prohibitions on Use of the Tables

(1) Restricted Beneficial Interest Exception to Tables

(2) Mortality Exception to Tables

2. Valuation of Partial Interests - § 7520

a. Overview

b. Life Estates and Terms for Years

c. Remainders or Reversionary Interests

d. Annuities

3. Valuation of Partial Interests Before May 1, 1989

C. Valuation of Life Insurance and Commercial Annuity Contracts

1. New Policy or Annuity on Which Additional Premiums Will Be Due

2. Single-Premium or Fully Paid-Up Insurance Policy

3. "Whole Life" or "Permanent" Life Insurance on Which Additional Premiums Are Due

4. Split-Dollar Life Insurance Arrangements

D. Valuation of Below-Market Interest Rate Loans

1. Historical Background

2. Section 7872 Gift Loans

a. Overview of § 7872

b. Calculation of Amount of Gift Under § 7872

(1) Term Loans

(2) Demand Loans

c. Exceptions

d. Effective Date of § 7872

E. Valuation of Publicly Traded Stocks and Bonds

1. Based on Selling Prices

a. Average of Highest and Lowest Selling Prices

b. Average of Bid and Asked Prices

2. Based on Blockage Discount

a. When Blockage Discount Is Allowed

b. Blockage Discount Not Restricted to Securities

c. Application of Blockage Discount to Simultaneous Gifts to Multiple Donees

F. Interests in Closely-Held Enterprises

1. Valuation Factors in Rev. Rul. 59-60

2. Minority Interest Discount

a. Valuation of Minority Shareholder's Interest in Closely-Held Corporation

b. Minority Interest Discounts as Applied to Other Business Interests

3. Discount for Lack of Marketability

4. Control Premium

5. Interest Subject to Transfer Restrictions

6. Effect of Federal Income Taxes on Value

a. Asset-Based Valuation

b. Subchapter S Corporations

G. Special Valuation Rules for Intra-Family Transfers of Nonpublicly Traded Property - § § 2701-2704

1. Background

2. Overview of Chapter 14

3. Valuation of Transfers of Interests in Closely-Held Corporations and Partnerships - § 2701

a. Scope and Effect of § 2701

b. Definitions

(1) Transfer of an Interest

(2) Applicable Retained Interests

c. Retained Interests to Which § 2701 Does Not Apply

d. Valuation of Applicable Retained Interest and Qualified Payment Right

e. Elections Provided in § 2701

f. Compounding Rules for Failure to Make Required Distributions

g. Reduction in Adjusted Taxable Gifts to Mitigate Double Taxation of Retained Interest Valued Under § 2701

4. Valuation of Transfers in Trust - § 2702

a. Rationale for § 2702

b. Scope and Effect of § 2702

c. Exceptions

d. Reduction in Aggregate Taxable Gifts for Subsequent Gift Transfer of Interest Previously Valued Under § 2702

5. Special Statute of Limitations for Gifts Valued Under § § 2701 and 2702

6. Effect of Options and Buy-Sell Agreements - § 2703

a. General Rules

b. Exception for Bona Fide Business Arrangement

c. Effective Date

7. Lapsing Rights and Restrictions - § 2704

H. Transfer by Gift of Encumbered Property

1. Gift of Property Subject to or Securing Debt of Donor

2. Gift Tax Payable by Transferee - "Net Gift"

a. Value of "Net Gift" Is Fair Market Value of Transferred Property Less Amount of Gift Tax Payable by Donee

b. Calculation of Gift Tax Due

3. Income Tax Consequences to Donor

a. "Net Gift" Transfer

b. Transfer of Encumbered Property

4. Effect on Value of Transferred Property of Expenses Arising After Transfer of Property to Donee

I. Addition of Excise or Sales Tax to Value of Gift

J. Adjustment Clauses

1. "Adjustment Clause" Defined

2. Purpose of Adjustment Clauses

3. Effect of Adjustment Clauses

a. Clauses that Require an Adjustment in the Amount of Property Transferred by Gift

b. Price Adjustment Provisions

c. McCord v. Comr.

4. Planning Considerations

K. Valuation Penalties

1. Penalty for Substantial Gift Tax Understatement

2. Penalty for Gross Valuation Misstatement

3. Exception for Reasonable Cause and Good Faith

L. Statement Explaining Determination of Value by IRS for Transfer Tax Purposes Must Be Furnished on Written Request of Taxpayer

M. Declaratory Judgment to Determine Value of Gift

VIII. Disclaimers

A. Introduction

B. Disclaimers of Pre-1977 Transfers

C. Disclaimers of Post-1976 Transfers

1. Statutory Requirements

2. Disclaimer of Survivorship Interest in Jointly Held Property

D. Disclaimers of Post-1981 Transfers

E. Effect of Disclaimer if Rights of Disclaimant's Creditors Are Impaired

IX. Gift Tax Exclusions

A. Section 2503(b) Per Donee, Per Year Exclusion

1. Overview

2. Historical Background

3. Exclusion Is Applied Annually on Per-Donee Basis

a. General Rules

b. Availability of Annual Exclusion for Certain Types of Property Transfers

(1) Gifts of Fractional Interests in Real Property

(2) Periodic Cancellation of Installment Notes

(3) Self-Canceling Installment Note

4. Special Exclusion Rule for Alien Spouses

5. Determining the Identity and Number of the Donees

a. Beneficiaries of Trust

b. Corporation as Donee

c. Gifts to Multiple Donees

d. Reciprocal Gifts

e. Donees Not Increased by Intermediaries

6. Gifts from Revocable Trusts

7. Present Interest Requirement

a. "Present Interest" and "Future Interest" Defined

b. Application of Present Interest Requirement to Outright Gifts

(1) Gifts of Bonds and Notes

(2) Gifts of Stock

(3) Life Insurance - Transfer or Assignment of Policy Directly to Donee

(4) Outright Gifts to Minors and Guardians

(5) Transfers to Corporations

(6) Transfers of Fractional Interests as Beneficiary of Trust

(7) Gift Must Provide Substantial Present Economic Benefit to Qualify for § 2503(b) Exclusion

8. Transfers in Trust: The § 2503(b) Trust

a. Overview

b. Present Interest Requirement

(1) General Rules

(2) No Mandatory Postponement of Income

(3) No Restrictions on Distribution of Income to Beneficiary

(4) Annual Distribution of Income

(5) Subsequent Transfers

c. Ascertainable Value Requirement

(1) Discretionary Power in Trustee to Invade Corpus

(2) Income Distributions to Multiple Beneficiaries

(3) Property that Is Not Income-Producing

(4) Administrative Powers May Make Value of Interest Unascertainable

9. Transfers in Trust for the Benefit of Persons Less than Age 21 - The § 2503(c) Trust

a. Introduction

b. Statutory Requirements

(1) Requirement That Property and Income May Be Distributed to the Donee or May Be Used for the Donee's Benefit Before Donee Attains Age of 21

(a) Instrument Must Not Impose "Substantial Restriction" on Trustee's Discretion to Distribute Income and Principal to or for Benefit of Donee

(b) Trust Provisions Directing Trustee to Make Distributions for Specific Purposes Are Not "Substantial Restriction" if Trustee Is Given at Least as Much Discretion as Guardian Under Applicable State Law

(2) Requirement that Remaining Trust Principal and Income Pass to Donee at Age 21 - Extension of Trust Term

(3) Requirement that Remaining Trust Principal and Undistributed Income Be Included in Minor's Estate if Minor Dies Before Age 21

c. Trusts that Qualify Under § 2503(c) with Respect to Income Interest Only

10. The Crummey Trust

a. Power of Beneficiary to Demand Distribution of Trust Property Creates Present Interest in Property Subject to Power

b. Number of Exclusions Allowed

c. IRS Requires Beneficiary to Have Actual Notice of Right to Withdraw and a Reasonable Time to Exercise the Right of Withdrawal

d. Gift Tax Consequences to Powerholder

(1) Lapse of Demand Right May Be § 2514 Taxable Gift to Extent Amount Exceeds Greater of $5,000 or 5% of Value of Property Subject to Power

(2) "Hanging" Crummey Powers

(3) "Cascading" or Successive Crummey Powers

(4) Aggregation of Crummey Powers

e. Effect of Crummey Withdrawal Powers on Exemption from GST Tax for Transfer Not Treated as Taxable Gift under § 2503

11. Insurance Trusts

a. Use of Crummey Power Avoids Gift Tax on Transfer of Insurance Policy to Trust

b. Subsequent Premium Payments by Donor Also May Qualify for Annual Exclusion

12. Special Needs Trusts

B. Exclusion for Educational and Medical Expenses

1. Educational Expenses

2. Medical Expenses

3. Use of Property in Kind by Donor

4. Generation-Skipping Transfer Tax

C. Exclusion for Waiver of Certain Pension Rights

D. Exclusion for Loans of Qualified Works of Art to Exempt Organization

E. Transfers to § 529 Plans

F. Transfers to § 530 Education Savings Accounts

G. Section 2501(a)(4) Exclusion for Transfers to Political Organizations

X. Gift Tax Deductions

A. Gift Tax Marital Deduction

1. Introduction

2. Historical Background

a. Purpose for Enactment of Marital Deduction

b. Treatment of Community Property Under Prior Law

c. Limitation on Amount of Deduction Under Prior Law

(1) Gift Transfers After April 2, 1948, and Before January 1, 1977

(2) Transfers After December 31, 1976, and Before January 1, 1982

3. Statutory Requirements for Marital Deduction

4. Unlimited Marital Deduction for Post-1981 Gifts

5. Deductible and Nondeductible Property Interests

a. Definitions

b. Nondeductible Terminable Interests

(1) Transfer of Interest to Spouse with Interest in Same Property Transferred to Another Donee or Retained by Donor

(2) Transfer of Property Interest to Spouse with Retained Power of Appointment in Donor

c. Exceptions to Terminable Interest Rule

(1) Life Estate with Power of Appointment in Donee Spouse

(2) Qualified Terminable Interest Property

(a) Statutory Requirements

(i) Qualifying Income Interest

(ii) Right to Income

(iii) Income Interest Must Be for Life

(iv) No Power to Appoint

(v) Election by Donor

(b) Effect of § 2523(f) Election on Subsequent Disposition of Property by Donee Spouse

(i) Transfers Subject to § 2519

(ii) Recovery Right Under § 2207A

(iii) Additional Gift if § 2207A Not Utilized

(c) Joint and Survivor Annuities

(3) Split Transfers in Trust to Spouse and Charity

(4) Joint Interests in Property

6. Interest in Unidentified Assets

7. Gifts of Remainder Interests to Spouse

8. Gifts of Life Insurance to Spouse

a. Nontrust Gifts

b. Gifts in Trust

9. Gift to Corporation May Qualify for Marital Deduction

B. Gift Tax Charitable Deduction

1. Deduction Only if Gift Made to Qualified Recipients to Be Used for Specified Purposes

2. Split Transfers to Charitable and Noncharitable Donees

a. Statutory Requirements Applicable to Charitable Transfers of Less than Donor's Entire Interest

b. Nontrust Split Interests

(1) Undivided Portion of Donor's Entire Interest in Property

(2) Irrevocable Remainder Interest in Personal Residence or Farm

(3) Qualified Conservation Contribution

(4) Charitable Gift of Work of Art

c. Split Interest Transfers in Trust

(1) General Principles

(2) Charitable Remainder Trusts

(a) Charitable Remainder Annuity Trust

(b) Charitable Remainder Unitrust

(c) IRS-Approved Trust Forms

(3) Pooled Income Funds

(4) Income Interest to Charity

XI. Effect of Gift Tax Treaties

XII. Computation of Gift Tax

Introductory Material

A. Pre-1977 Gifts

B. Post-1976 Gifts

C. Post-2001 Gifts

D. Section 2505 Credit Against Gift Tax

1. Overview

2. Amount of Credit Available for Transfers Before 1981

3. Amount of Credit Available for Transfers After 1980 and Before 1998

4. Amount of Credit Available for Transfers After 1997 and before 2002

5. Amount of Credit Available for Transfers After 2001

E. Determination of Gift Tax Liability if No Prior Gifts Were Made

F. Determination of Gift Tax Liability if Gifts Were Made in Prior Years

G. Cumulative Gift Tax Computation - Examples

1. Pre-1977 Gift

2. 1977-1981 Gifts

3. Post-1981 Gifts

H. Relationship of Gift Tax to Estate Tax Calculation

I. Section 2504

1. Effect on Gift Tax Calculations

a. Gifts on or Before August 5, 1997

b. Gifts After August 5, 1997

2. Effect on Estate Tax Calculation

a. Gifts Made After August 5, 1997

b. Gifts Made on or Before August 5, 1997

XIII. Returns and Payment of Gift Tax

A. Gift Tax Returns

1. Required Form

2. Who Must File Returns

a. General Rules

b. Donors Who Die Before Filing Gift Tax Return

c. Returns Made by Agents

d. Section 2513 Split Gifts

3. Filing Date and Extension of Time for Filing

4. Where to File Returns

5. Effect of Failure to File Gift Tax Return

a. Statute of Limitations Remains Open

b. Penalties for Failure to File Return or for Late Filing

6. Contents of Returns

B. Payment of Gift Tax

1. General Rules

2. Extension of Time for Payment

C. Liability for Gift Tax

1. General Rule - Primary Liability of Donor

2. Personal Liability of Executor or Administrator

3. Section 6324(b) Lien and Secondary Liability of Donee for Tax

D. Refunds of Erroneously Paid Gift Tax

1. General Rules for Filing Claims for Refund

2. Statute of Limitations on Refund Claims

3. Doctrine of Equitable Recoupment

E. Reporting of Gifts Received from Foreign Persons

F. Transfer Tax on Gifts and Bequests Received from Covered Expatriates

XIV. Income Tax Consequences Associated with Gift Transfers

A. Income Tax Basis of Property Acquired by Gift

1. General Rules

a. Basis for Determining Gain or Loss

(1) General Rule - Carryover Basis

(2) Loss Basis Rule

b. Increase in Basis for Federal Gift Tax Paid on Appreciated Property

2. Rules for Property Subject to Depreciation, Amortization, or Depletion

3. Tacked Holding Period

4. Part-Gift, Part-Sale Transfers

5. Special Rule for Property Passing from Decedent to Donor if Donor Made Gift to Decedent Within One Year of Death

6. Gift Basis Rules Do Not Apply to Transfers Incident to Divorce - § 1041

B. Gain Recognition upon Transfer of Appreciated Property to Foreign Estate or Trust

XV. Planning Considerations

Introductory Material

A. Factors Encouraging Gifts

1. Nontax Motivations

2. Reduce Total Transfer Taxes

a. Section 2503(b) Annual Gift Tax Exclusion

b. Section 2035(e) Transfers

c. Removal of Post-Transfer Appreciation and Periodic Income from Transfer Tax Base

3. Achieve Income Tax Savings

a. Periodic Income

b. Appreciation in Value

4. Qualification for Favorable Code Provisions

a. Section 303

b. Section 2032A

c. Section 2057

d. Section 6166

5. Enhance Estate Liquidity

6. Accomplish Plan for Control of Family Business

7. Minimize State Transfer Taxes

B. Factors Discouraging Gifts

1. Loss of Control over Property

2. Reduction in Net Worth and Periodic Income

3. Potential Loss of Estate Liquidity

4. Loss of § 1014 Step-Up in Basis

5. Repeal of Estate Tax

C. Special Factors as to Gifts to Minors

1. Potential Application of "Kiddie Tax" to Donee Less than 24 Years of Age

2. Gift to Provide Support for Minor Children

3. Advantage of Providing Minor Donee Experience with Money

4. Possible Loss of Dependency

5. Possible Adverse Effect of Control over Money

D. Selection of Assets for Gift

1. Selection Generally Dependent upon Goals of Gift

2. Adjusted Basis Considerations

E. Types of Gift Transfers

1. Direct Gifts

a. Bank Account

b. Promissory Notes and Checks

c. Business Interests

d. U.S. Savings Bonds

e. U.S. Treasury Notes

f. Life Insurance

(1) Purchase of Life Insurance for the Benefit of Another

(2) Assignment of Existing Life Insurance Policy

(3) Payment of Premiums

(4) Community Property Used to Purchase Insurance

g. Interest-Free and Below-Market-Interest-Rate Gift Loans

h. Annuities

(1) Gift to Annuitant

(2) Gift to Obligor

(3) Employee Annuities

(4) Gift to Spouse

i. Transfers Pursuant to Court Order or Compromise Settlement Agreement

j. Division of Sales Proceeds Between Life Tenant and Remainder Interests

k. Disposition of Income Interest in QTIP Property by Surviving Spouse

2. Indirect Gifts

a. Transfers in Trust

b. Interests Created by Third-Party Contracts

c. Discharge of Indebtedness

d. Transfer or Creation of Interests in Family-Controlled Enterprises

e. Gift by or to Business Entities

3. Transfer by Incompetent Person

F. Deathbed Gifts

G. Generation-Skipping Transfer Tax Planning

H. Lifetime Gifts and Qualification for Public Assistance Programs

I. Planning During Phase-Out of Estate and Generation-Skipping Transfer Taxes

Working Papers

Working Papers

Table of Worksheets

Other Sources

Worksheet 1 Net Worth Before and After Gift

Worksheet 2 Net Income Before and After Gift

Worksheet 3 H.R. Rep. No. 708, 72d Cong. 1st Sess. (1931)

Worksheet 4 H.R. Rep. No. 1492 (Conf. Rep.), 72d Cong. 1st Sess. (1931), Amendments 117, 118, 119, 120, 121 (1939-1 C.B. (Part 2) 544â€"545)

Worksheet 5 Estate and Gift Tax Reform Act of 1976, Excerpts from H.R. Rep. No. 1380 94th Cong., 2d Sess. 10â€"17, 60â€"63 (1976)

Worksheet 6 General Explanation of the Tax Reform Act of 1976 (Disclaimers - pp. 580â€"581)

Worksheet 7 General Explanation of the Economic Recovery Tax Act of 1981, pp. 273-75

Worksheet 8 General Explanation of Tax Legislation Enacted in 1997, pp. 63-64, 74-76, 407-08

Worksheet 9 General Explanation of Tax Legislation Enacted in 1998, p. 175

Worksheet 10 Summary of Provisions Contained in the Conference Agreement for H.R. 1836 The Economic Growth and Tax Relief Reconciliation Act of 2001, pp. 9-12

Worksheet 11 General Explanation of Tax Legislation Enacted in the 107th Congress, pp. 57â€"85

Worksheet 12 Technical Explanation of the "Job Creation and Worker Assistance Act of 2002," pp. 37â€"38

Worksheet 13 IRS Publication 950: Introduction to Estate and Gift Taxes

What's New


Unified Credit (Applicable Exclusion Amount)

Gift Tax

Gift Splitting

Applying the Unified Credit to Gift Tax

Filing a Gift Tax Return

Estate Tax

Gross Estate

Taxable Estate

Applying the Unified Credit to Estate Tax

Filing an Estate Tax Return

Generation-Skipping Transfer Tax

Income Tax on an Estate





Committee Reports:

Treasury Procedures and Rulings:




































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