Estate Planning Exam 2 QUESTIONS N
ANSWERS A+ RATED
What is a gift to another person? What characteristics are present in gift? - correct answer ✔✔
a gift is a voluntary transfer, for less than full consideration, of property, from one person
(donor) to another person/entity (donee).
Characteristics present in a gift are:
- two parties involved (donor and donee)
- donor must have intent to make a voluntary transfer
- donor must be competent to make the gift
- donee must be capable to receive the gift
- donee must take delivery
- donor must actually part with dominion and control over the gifted property
List the imputed interest rules for no interest loans and below market loans often referred to as
gift loans (remember there are 3 tiers of loans) - correct answer ✔✔ If someone lends a loan at
0 interest or low interest, the IRS expects you to charge a certain amount of interest even if you
don't.
Gift loans of less than $10k are exempt, as long as the money isn't used to buy income
producing assets
Compensation-related and corporate-shareholder loans under $10k are also exempt if the
lender can demonstrate that tax avoidance wasn't the purpose of the loan.
, Discuss the requirements and limitations of the annual gift tax exclusion? - correct answer ✔✔
The annual exclusion allows each individual to transfer up to $15,000 (for 2020) per year per
donee gift tax free. To be eligible fort the annual exclusion the gift must be of present interest. If
it is future interest it does not qualify and is taxable gift. The annual exclusion perishes each
year and does not carryover to successive years.
Explain the advantage of using the election to split gifts - correct answer ✔✔ If an individual
gifts separate property, utilizing his annual exclusion, only $15,000 per year per donee will be
excluded from gift tax. The gift splitting election allows the donor's spouse to consent to split
the gift and, in essence, treat one-half of the gifted property as her property, and eligible for her
annual exclusion. After the gift splitting election, $30,000 for 2020 (both spouse's annual
exclusion) of the donor's separate property gift will avoid gift tax.
Ex: want to help you daughter with a home remodel that's cost $21k. if you just write a $21k
check that is subject to gift tax. If you and your spouse decide to do a split gift, then you can
each write a check for $10,500 and no tax will happen.
What is a crummy power of withdrawal and how is it used? - correct answer ✔✔ allows the
beneficiaries of the trust to withdraw any contribution made to the trust within a certain period
of time (usually 30 days). Since this gives a general power of appointment it is treated as
present interest transfer and qualifies for the gift tax annual exclusion
How are gifts to spouses treated for gift tax reporting purposes? - correct answer ✔✔ As long as
the spouse is a United States citizen, a gift to a spouse is not taxable because of the marital
deduction. If the spouse is not a United States citizen, then a special annual exclusion is
available ($157,000 for 2020).
A donees adjusted basis in gifted property is generally the donors basis. List the 2 circumstances
when this is not true - correct answer ✔✔ 1. When the fair market value of the property at the
date of the gift is less than the donors adjusted basis
ANSWERS A+ RATED
What is a gift to another person? What characteristics are present in gift? - correct answer ✔✔
a gift is a voluntary transfer, for less than full consideration, of property, from one person
(donor) to another person/entity (donee).
Characteristics present in a gift are:
- two parties involved (donor and donee)
- donor must have intent to make a voluntary transfer
- donor must be competent to make the gift
- donee must be capable to receive the gift
- donee must take delivery
- donor must actually part with dominion and control over the gifted property
List the imputed interest rules for no interest loans and below market loans often referred to as
gift loans (remember there are 3 tiers of loans) - correct answer ✔✔ If someone lends a loan at
0 interest or low interest, the IRS expects you to charge a certain amount of interest even if you
don't.
Gift loans of less than $10k are exempt, as long as the money isn't used to buy income
producing assets
Compensation-related and corporate-shareholder loans under $10k are also exempt if the
lender can demonstrate that tax avoidance wasn't the purpose of the loan.
, Discuss the requirements and limitations of the annual gift tax exclusion? - correct answer ✔✔
The annual exclusion allows each individual to transfer up to $15,000 (for 2020) per year per
donee gift tax free. To be eligible fort the annual exclusion the gift must be of present interest. If
it is future interest it does not qualify and is taxable gift. The annual exclusion perishes each
year and does not carryover to successive years.
Explain the advantage of using the election to split gifts - correct answer ✔✔ If an individual
gifts separate property, utilizing his annual exclusion, only $15,000 per year per donee will be
excluded from gift tax. The gift splitting election allows the donor's spouse to consent to split
the gift and, in essence, treat one-half of the gifted property as her property, and eligible for her
annual exclusion. After the gift splitting election, $30,000 for 2020 (both spouse's annual
exclusion) of the donor's separate property gift will avoid gift tax.
Ex: want to help you daughter with a home remodel that's cost $21k. if you just write a $21k
check that is subject to gift tax. If you and your spouse decide to do a split gift, then you can
each write a check for $10,500 and no tax will happen.
What is a crummy power of withdrawal and how is it used? - correct answer ✔✔ allows the
beneficiaries of the trust to withdraw any contribution made to the trust within a certain period
of time (usually 30 days). Since this gives a general power of appointment it is treated as
present interest transfer and qualifies for the gift tax annual exclusion
How are gifts to spouses treated for gift tax reporting purposes? - correct answer ✔✔ As long as
the spouse is a United States citizen, a gift to a spouse is not taxable because of the marital
deduction. If the spouse is not a United States citizen, then a special annual exclusion is
available ($157,000 for 2020).
A donees adjusted basis in gifted property is generally the donors basis. List the 2 circumstances
when this is not true - correct answer ✔✔ 1. When the fair market value of the property at the
date of the gift is less than the donors adjusted basis
