Estate and Gift Tax Returns

Report
Estate and Gift Tax Returns: Start to Finish
Carol Ina Neely
Counsel
Fulbright & Jaworski LLP
October, 2014
Gift Tax Returns and Estate Tax Returns
The purpose of this talk is to cover the basics of preparing and
filing federal estate and gift tax returns. Hours could be
dedicated to each topic, so this overview cannot cover all of the
issues and details you will encounter. The goal is to give you a
basic understanding and hopefully enough information to spot
issues as you are preparing and working on these returns.
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Filing Requirements:
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Who
What
When
Where
The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Who is required to file a Form 709?
• Generally anyone who made a gift to another person in excess
of the annual exclusion amount ($14,000 for 2014) or a future
interest.
• Exceptions:
– Gifts between citizen spouses (other than non-qualifying terminable
interests)
– Transfers to political organizations
– Payments that qualify for the educational exclusion
– Payments that qualify for the medical exclusion
– Gift splitting between spouses
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
What is a gift?
• Any transaction in which an interest in property is gratuitously
passed or conferred upon another, regardless of the means or
device employed, constitutes a gift subject to tax. Treas. Reg.
§25.2511-1(c)(1)
• This includes (but is not limited to):
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Future interests
Transfers for inadequate consideration
The exercise or release of a general power of appointment
Forgiveness of debt
Interest free or below market loans
Transferring the benefits of an insurance policy
Property settlements
The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
When to File?
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Form 709 is an annual return.
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A donor must file a Form 709 no earlier than January 1, but no later than April
15, of the year after the gift was made.
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If the donor died during the year the gift was made, the Form 709 is due not
later than the earlier of :
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Extension of Time to File (not an extension to pay).
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The due date of the donors estate tax return, or
April 15 of the year after the gift was made, or the extended due date granted for
filing the donor’s gift tax return.
Extending the donor’s time to file his or her income tax return will automatically
extend the time to file the donor’s Form 709
Form 8892
The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Where to File (as of 2014)?
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By mail:
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999
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By private delivery service (DHL, FedEx, UPS):
Internal Revenue Service
201 West Rivercenter Boulevard
Covington, KY 41011
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift:
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Is the donor married?
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Was the gift of community property or will the donor elect to split gifts?
Generally, if you split one gift, you must split them all.
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When is the non-donor spouse required to file a Form 709?
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Is the donee a “skip person”?
The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift (Cont.):
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Schedule A
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Gifts Subject Only to Gift Tax
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Direct skips
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Only those gifts that are currently subject to both the gift and GST taxes
Indirect skips
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Gifts made to donor’s spouse
Gifts made to third parties that are to be split with donor’s spouse
Charitable gifts
Other gifts
Some gifts made to trusts are subject only to gift tax at the time of the transfer but may later be
subject to GST tax.
The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift (Cont.):
Sample description of cash bequest to non-skip person
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift (Cont.):
Sample description of cash bequest to a trust that is a skip person
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift (Cont.):
Sample description of cash and securities bequest to a GRAT that may benefit a skip person
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Reporting the gift (Cont.):
Sample description of gift of units in an LLC to a trust that may benefit a skip person
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Allocation of GST Exemption
• Automatic Allocation and 2632 elections
• Direct skip:
– Opt out by a check mark in column C on Schedule A, Part 2 and pay the
GST Tax or pay the GST Tax on a timely fired Form 709.
• Indirect skip (all elections are made by a check mark in
column C on Schedule A, Part 3 – so a statement must be
attached explaining the election):
– Opt out one time
– Opt out forever
– Opt in
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Sample allocation of GST exemption when no elections are made:
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The Gift Tax Return
Form 709 United States Gift (and Generating-Skipping Transfer) Tax Return
Other Issues:
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Supplemental Documents (Form 712, Appraisals, any other valuation
methodology)
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Reporting non-gift transfers and adequate disclosure – to begin the running of
the statute of limitations for a gift, the gift must be adequately disclosed on
the Form 709 (or an attached statement). In general, a gift will be adequately
disclosed if the return or statement includes:
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A full complete Form 709
A description of the transferred property and any consideration received by the
donor;
The identity of, and relationship between the donor and each donee;
If the property is transferred in a trust, the trusts EIN and a brief description of the
terms of the trust (or a copy of the trust in lieu of such description)
Either a qualified appraisal or a detailed description of the method used to
determine the fair market value of the gift.
The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
Filing Requirements:
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Who
What
When
Where
The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
Who is required to file a Form 706?
For decedents who died in 2014, a Form 706 must be filed by the
executor of the estate of every U.S. citizen or resident:
• Whose gross estate, plus adjusted taxable gifts and specific
exemption, is more than $5,340,000; or
• Whose executor elects to transfer the DSUE amount to the
surviving spouse, regardless of the size of the decedent's
gross estate.
For estate tax purposes, a resident is someone who had a
domicile in the United States at the time of death.
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
What is included in the decedent’s gross estate?
All property in which the decedent had an interest (including real
property outside the United States) and it also includes:
• Transfers made during the decedent’s life without adequate security
• Annuities
• Joint interests
• Some life insurance proceeds
• Community property interests
• Property over which the decedent possessed a general power of
appointment
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
When to file the Form 706?
The executor must file the Form 706 within 9 months after the
date of the decedent’s death. If the executor is unable to file the
Form 706 by the due date, a Form 4768 can filed to apply for an
automatic 6 month extension of time to file the return (but not an
extension of time to pay the tax)
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
Where to File (as of 2014)?
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By mail or by private delivery service (DHL, FedEx, UPS):
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
What comprises the Form 706:
The Form 706 is comprised of 6 parts and 16 schedules. The six parts to the
Form 706 are where the taxpayer (the executor) provides the identifying
information for the executor/estate, computes the tax, makes various elections,
signs the return, summarizes what is provided in the various schedules, and
calculates the DSUE amount. The schedules are used to determine the gross
estate and the deductions applicable to the gross estate.
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
Sample Form 706:
As an example, see the attached Appendix which is a sample Form 706 for a hypothetical
client.
Decedent, Big Bird, died on January 1, 2013. He was survived by his wife, Pretty Bird, and
only child, Cookie Monster. Big Bird resided in a community property state and owned only
community property assets. Big Bird died with a relatively simple Will in place that named
his wife as the independent executor Big Bird’s Will made the following specific bequests:
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Household goods and personal effects to his wife, Pretty Bird,
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$1,000,000 to his son, Cookie Monster, and
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$1,000,000 to a GST Trust for his son and grandchildren.
Everything else was given outright to his wife, Pretty Bird.
During Big Bird’s lifetime he filed one gift tax return reporting a taxable gift of $100,000 and
allocating $100,000 of his lifetime GST exemption to the gift.
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The Estate Tax Return
Form 706 United States Estate (and Generating-Skipping Transfer) Tax Return
The Form 706 Supporting Documents:
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Death certificate
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Certified copy of the Will
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Forms 712, Life Insurance Statement
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All prior gift tax returns
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Copies of trust agreements created by the decedent or of which decedent
was a beneficiary or was granted powers of appointment
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Appraisals/valuation statements
Carol Ina Neely
Counsel
713-651-5266
[email protected]
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