Question

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

2The estate tax is a tax on the transfer of property at death.it is also known as death tax. This is different from an inheritance tax. An estate tax is paid by the estate of the deceased (that is, the person giving the property). The inheritance tax is paid by the beneficiary. Estate and Gift taxLaw that allows an individual to transfer an unrestricted amount of assets to his or her spouse at any time, including at the death of the transferor, free from tax.

3.once the trust agreement is signed, it cannot be amended or revoked. However, the trust agreement should be drafted in a flexible manner to allow the trustee to address unforeseen changes in circumstances.yes it is possible to retain the right to change the beneficiary by MARY i.e, creator of trust .however every beneficiary who may receive trust property must consent. If even one person refuses, this option is not available.

4.The exclusion should allow taxpayers to make customary and occasional gifts of relatively small value without triggering the gift tax or its reporting requirements. It should be a simple provision that easily accomplishes its limited objectives. It should not encourage lifetime transfers .it paves the way to make larger gifts to dear ones.

5.. A present  interest is where you have the current right to possess and use the real property. A future interest is  where you have a present interest in real property but you don't currently have the right to possess the property