Question

Scenario: Your client Mary, a surviving spouse of John, has approached you to provide her with gift and estate planning services. Respond to the following questions and submit your answers in a Word Document to the Unit 1 Assignment Dropbox. Remember to review and reference the applicable sections of the Tax Code, including Publications 706 and 709. 1. Based on Mary’s situation, determine the credit for the gift and estate tax exclusion. Use 2017 indexed exclusion of $5,500,000. Based on your research of the tax code, what is the rationale for the gift and estate tax exclusion? 2. John used $450,000 of his gift and estate tax exclusion for his lifetime gifts. Assuming that John’s estate used $2,300,000 of his estate tax exclusion in closing his estate, determine Mary's estate tax exclusion when she dies if she and her spouse elected to gift split on all taxable gifts. Clearly show your calculations. 3. Mary wants to transfer property into an irrevocable trust she created, but she intends to retain the right to change the beneficiaries. Analyze the circumstances that are required for Mary’s transfer to be a completed gift. 4. Explain to Mary the gift tax annual exclusion and why it was enacted. 5. Differentiate between a present interest and a future interest. How do they apply to Mary’s situation?

Answer 1

Based on Mary's situation, she doesn't have to pay gift tax until she exceed her life time gift tax exemption of $5.5 million as mentioned in the question of indexed figure 2017 (or else it would be $5.49 million/ $5.25 million in 2013). But if the limit exceeds that, she should have to pay exceeded amount more than $5.5 million to 40%

As John used $23,00,000 and $4,50,000 out of 5.5 million dollars so she can tax the benefit of 2.75 million in the near future. If he exceeded 2.75 million of life time gifts he has to pay tax of 40 % of whatsoever exceeds

Mary has to properly file return of tax provided the proper forms of 706 and 709 are prepared. The gift tax is imposed on individuals not on trusts. So same calculated process above will take place

Mary gift tax annual exclusion will be $14000 per annum and it is enacted to avoid any tax evasion by the individuals.

Present interest of gift can be enjoyed as soon as the gift is transferred and take control of it where it cannot be done in the case of future interest of the gift and it corresponds according to the situation. Here, its a future interest of gift as complete rights are not transferred to the beneficiaries.