Question

Which of the following transfers results in an adjusted taxable gift?

Harriett and George give their son and his wife the sum of $55,000 in stock in 2018.

Bob transferred his $500,000 life insurance policy to an irrevocable trust of which his adult daughter is beneficiary. The life insurance policy had a gift tax value of $12,000 at the time of the transfer.

Cathy gave each of her four children the sum of $10,000 for Christmas. These are the only gifts Cathy made to her children during the year.

Geoffrey has 16 grandchildren and gave each of them $14,000 for their birthdays. At Christmas, he gave each of them an additional $10,000.

Answer 1

Adjusted Taxable Gifts

Taxable gifts made after Dec. 31, 1976 in excess of the $15,000 annual gift exclusion amount (indexed for 2018), need to be added back into the taxable estate to determine the tax base. Under special circumstances, if the gift was included in the gross estate it would not need to be reported again.

The FMV at the date of the gift is the amount that would be applied.

A) This is the case of gift splitting.

As, The IRS has announced that the annual gift tax exclusion will be $15,000 per recipient for 2018.

By splitting a gift with your spouse, you can double the annual tax-free amount. For example, you alone could give $30,000 gift-tax free per recipient if your spouse consents to split the gift and neither of you makes other gifts to that recipient that year.

In this case, Harriett and George can give sum of $60,000 stocks to their son and his wife using gift splitting. So, this does not result in adjusted gift tax.

B) After you transfer the policy, you are no longer the policy owner and the policy benefits will not be included in your estate.

In this case, Bob transferred his $500,000 life insurance policy to an irrevocable trust. So, if you transfer your life insurance policy, when you pass away the proceeds will not be in your name and would therefore not be included in the value of your estate at your death.

The life insurance policy had a gift tax value of $12,000 at the time of the transfer which is less than annual gift tax exclusion of $15,000 per recipient. So, this does not result in adjusted gift tax.

C) Cathy gave each of her four children the sum of $10,000 for Christmas. These are the only gifts Cathy made to her children during the year.

As this is less than annual gift tax exclusion of $15,000 (as per 2018) per recipient. So, this does not result in adjusted gift tax.

D) Geoffrey has 16 grandchildren and gave each of them $14,000 for their birthdays. At Christmas, he gave each of them an additional $10,000.

As, The IRS has announced that the annual gift tax exclusion will be $15,000 per recipient for 2018.

In this case, Geoffrey gifted total $24,000 in a year, so only $15,000 will come under gift tax exclusion and remaining amount $9,000 per recipient will result in adjusted gift tax.