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Wealth Transfer Tax
University of California, Hastings School of Law
Stanley, Kim

Tax Transfers Outline (Nutshell) Fall 2009

– Outline of Estate tax:
o §2031: value of the gross estate of D shall be determined by including the value at the time of his death of all property, real or person, tangible or intangible, wherever situation.
o §2032: alternate valuation date: executor can elect to include the value of property included in the GE as of six months after D’s death, or if it is already been sold, then the value at the date of disposition rather than at the date of death
o §2033: value of the gross estate shall include all property
o §2034: value of GE includes all of the property of D without any reduction for an interest of dower/elective share/curtesy in favor of SS
o The amount ascertained is not the final tax liability because there are certain credits allowed
§ Unified tax credit: §2010: eliminates the estate tax on taxable transfers up to an applicable exclusion amount
· Year 2002: $1,000,000
· Year 2004: $1,500,000
· Year 2006: $2,000,000
· Year 2009: $3,500,000
§ Credit for state death taxes (§2001)
§ Credit for gift taxes paid before 1977 gifts that are included in GE (§2001)
§ Credit for estate tax paid on prior transfers (§2001
§ Credit for foreign death taxes (§2001
– Outline of Gift tax:
o Process
§ Total value of the gift under §2512 minus applicable exclusions under §2503 minus deductions allowed under §2522-2524 equals taxable gift
o §2501(a): tax is imposed on the transfer of property by gift during the calendar year by any individual
§ §2511: Applies regardless of whether the transfer is in trust or otherwise, whether the gift is direct or indirect, whether the property is real or personal property, or tangible or intangible
o §2502: method of computing GT
o Gift tax applies to any transfer made without consideration in money or money’s worth or an equivalent value received in return
§ Doesn’t have to have donative intent (which you do need in common law)
§ Exceptions:
· Business or arm’s length transfers
· Transactions made or required by law
· Incomplete transfers (ex: revocable trusts)
o §2512: valuation must be made at the date of the gift
§ If property is transferred for less than an adequate/full consideration, then the amount of the gift is the amount by which the value of the property transferred exceeds the value of the consideration received
o Annual exclusions
§ Every donor is allowed an annual exclusion of $10,000 per donee per year (§2503(b))
§ Unlimited exclusion for amounts paid on behalf of a donee directly to an educational institution for tuition payments or to a health care provider for medical expenses (§2503(e))
· Relationship of donor/donee doesn’t matter
§ Unlimited charitable deduction (§2522)
§ Unlimited marital deduction (§2523(a))
§ Gift from spouse to third party can be considered as a split gift such that ½ is from husband and ½ is from wife (§2513)
o Credit
§ Only one unified credit: §2502
– Gift tax v estate tax: measurement of the tax base
o GT: amount of a gift is defined as the value of the transferred property, excluding any gift tax imposed on the transfer
§ So the GT is said to be computed on a “tax-exclusive” base à there is no tax on the tax
o ET: includes the value of all the property owned at death, including any amount used to pay

x determined
§ Taxable amount [the value of the property received by the transferee (§2623)] multiplied by the applicable rate (§2641)
o Who pays the tax
§ Direct skip: transferor
§ Taxable termination: trustee
§ Taxable distribution: transferee
o What credits are available
§ State tax credit (§2604)
– Tax applied to transfers at death and during life
o Estate tax on transfers of property at death
§ Gross estate includes: property owned by D in the form of real estate, bank accounts, stocks and bonds, causes of action that survive the D’s death, claims against debtors, patent and copyright royalties, interest in an unincorporated business, and D’s interest in community property or a tenancy in common
§ NOT: property held by D in the form of a joint tenancy with right of survivorship (because D’s interest expires at death)
o Future interests in property often must be included in the GE under §2033
o Definition of property for gift tax purposes:
§ Have to see what the value is at the time of transfer
· Usually has a broad meaning and includes every species of rights or interests protected by law and having exchangeable value
· If the donor owns less than a complete interest in the property in question, then the gift will be limited to the interest that he in fact owns and does in fact transfer