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Wealth Transfer Tax
University of Oklahoma College of Law
Gillett, Mark R.

Wealth Transfer Tax
Fall 2012
Calculation of the Gift and Estate Tax
§  2001- Congress repealed the estate and generation-skipping transfer taxes, but retained the gift tax.   Congress, however, delayed the effective date of the repeal to January 1, 2010. 
§  Beginning in 2002, gift tax exemption amount will be 1,000,000.
§  Goes to 3,500,000 for decedents dying in 2009. 
§  In 2010 the estate tax is repealed, and the maximum tax rate for inter vivos gifts will be 35 percent.
§  Amendments do not extend beyond 2010 back to $1,000,000 in 2011. 
§  The gift tax is imposed only on transactions where the donor has give up dominion and control over the property and received nothing in return.
§  12,000 annual exclusion.  (13,000 this year).
§  No actual gift tax paid until taxable transfers exceed the $1,000,000 applicable exemption amount §2505. 
§  Estate tax is computed on the taxable estate, increased by the amount of adjusted taxable gifts. 
§  Adjusted taxable gifts are all the taxable gifts made during life that are not otherwise included in the gross estate. §2001. 
§  The amount of any gift tax paid is then subtracted.  §2001.
§  Credits against the estate tax include:
o   Unified credit- §2010.
o   Credit for certain “prior transfers” §2013.
§  Go back for sample calculations!!!
§  Can really pass down $7 million to children.
§  gift tax- letting it be taxed at lower rate if you let rich give away.
§  §2501 1 over 2.
§  1- first sum up taxable gifts for current year.
o  Add up gifts since 1932
o  Quarters between 1971& 1982
§  Subtract 2
§  2010©= credit amount
§  Line 10- $6,000 is the greatest amount.
§  2001.  Excess 1 over 2.
§  Taxable estate+ adjusted taxable gifts (post- 1906).
§  B(2) means gift tax actually paid.
§  Probably the same (payable vs. paid)
§  If comes in at line 1 doesn’t come in at line 4.
o  If gift after 76 comes in at line 1 or line 4.
§  Line 7- all gift paid.
§  Never pay gift or estate tax twice.  May bring in what you already paid.
§  Shouldn’t make a difference if at death or life.
§  Difference b/w credits b/c of income tax reasons. 
§  Shouldn’t make a difference if at death or life.
§  Difference between credits because of income tax reason. 
§  Gift tax due when Income tax due annually.
§  Gift tax exclusive.  Tax is not part of taxable gift. 
§  From this standpoint more efficient to give.
§  2035- if within 3 years bring back any gift tax.
o  End up taxing the tax.
§  Gift tax is actual amount paid.  Check written for.
§  Value gift at time of gift. 
The Definition of a Gift
General Principles
§  Common law test of “donative intent” is not sufficient.  The test is highly subjective and would allow similar transactions to be taxed differently, depending on the taxpayer’s proof of motive as well as the indentity of the fact finder.
§  §2501 does not even purport to define the term “gift.”
§  Job is left to §2512 which is entitled “valuation of gift” and which provides “where property is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift.”
§  Income tax purposes only Duberstein- A transfer that arises from “detached and disinterested generosity” or from “affection, respect, admiration, charity, or like impulses.”
§  For purposes of the gift tax, the primary consideration is a comparision of values- what the donor gave up versus what the donor received.
§  The gift tax is an excise tax, imposed on the transfor of property by the donor rather than on the receipt of the property by the done.
§  It is measured by the value of what the donor has given away, not what the done has received, in fact, the done need not be identified or even alive at the time of the transfer. §25.2511-2(a).
Class Notes:
§  Shouldn’t make a difference if at death or life.
§  Gift tax due when Income tax due annually.
§  Gift tax is exclusive.  Tax is not part of taxable gift.
§  Estate tax is inclusive.  From this standpoint more efficient to give.
§  2035- if within 3 years bring back any gift tax.

Class Notes
§  Issues
o   Donative intent?
o   Consideration?
§  Court says DON’T need donative intent.
§  The consideration has to flow to the donor’s estate.
§  “must benefit the donor”
Merrill v. Fahs
F-  Antenuptial agreement to set up irrevocable trust for $300,000 for release of marital rights.
R- In the 1932 act Congress specifically provided that relinquishment of marital rights for purposes of the estate tax shall not constitute “consideration in money or money’s worth.” (later says construe gift and estate together)
H-  Congress undoubtly intended the requirement of “ade and full consi” to exclude relinquishment of dower and other marital rights with respect to the estate tax.
§  Gift is not taxed until the transaction has been completed, i.e., until the donor has given up dominion and control over the property.
§  That a promise to make a gift becomes taxable in the year in which the obligation became binding and not when the discharging payments were made.
§  Sections 2056 and 2523 now allow deductions for transfers to spouses. (not there for Merill and Wymas)
o   Income tax purposes- acquiring a transferred basis, rather than a stepped-up basis, in the property. §1041. 
o   As a result of these sections, an antenuptial agreement that is conditioned on marriage should create neither gift nor income tax consequences.
§  Payment of a gift tax by the donee is treated as flowing to the donor.  Re §25.2511-2 (a).
§  Court held that such an arrangement was a part sale/part gift for income tax purposes.
o   Donor realized income equal to the difference between the gift tax paid by the recipient and the donor’s adjusted basis in the property.