Estate and Gift Tax Outline

 
 
 
FEGT Fleischer – Fall 2016
 
 
 
§2031(a) – Definition of Gross Estate
 
 
 
GE is the DOD value (FMV) of all property described in §§2031-2044.
FMV – the price, at which the property would change hands between a willing buyer and a willing seller, neither party being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts.
Liquid assets – FMV can be determined by reference to comparable sales in the open market.
More problems when the item is not for sale in the open market
 
§2033 – Property in Which the Decedent had an Interest
Inclusion of “all property to the extent of the interest therein of the decedent at the time of death.” Use “FMV” Reg. 20.2031-1(b)
Two Part Test:
(1) Decedent must own an interest in property prior to death; and
(2) Decedent must have held the right to transfer that interest at death.
Beneficial Interest – must be a beneficial interest; the burden is on the estate to prove that it is not a beneficial interest.
Routine Inclusions
Real property solely owned by the decedent
Tangible personal property solely owned by the decedent
Items raising no questions such as:
Currency in the decedent’s safe-deposit box
Balance in decedent’s checking or savings account (this does not include joint accounts)
Any credit from one’s brokerage account
Stocks, Bonds, CD’s owned solely by the decedent
Amounts due to the decedent on notes arising out of the decedent’s lifetime loans or deferred payment sales.
Income Items – rights of the decedent at death must be treated as property in which decedent had an interest §2033.
Salary due at death (Note this will be taxed as income to the decedent’s estate under §691 but it is still includible in the estate under §2033.)
Bonuses payable to decedent at time of death
Bonuses which the decedent had no interest in at the time of death, but were awarded after death are not included in the gross estate even if they are paid to the decedent’s estate.
Compensation due for services other than as an employee are treated the same as salary
Rent accrued at death on real or personal property owned by decedent
Accrued interest at death
Dividends on shares of stock that are payable to the decedent at the time of death – right does not arise until the record date of the dividend.
GE includes the value of a promissory note payable to the order of the decedent, even if the will calls for forgiveness of the balance of the note. [Reg. 20.2033-1(b)] If the promissory note itself contains the clause, then it is not included in GE b/c decedent has nothing to transfer at death. [Moss v. Commissioner] Partial Interests in Property
Shared Interest in Property – if the interest is one that the decedent can pass on to others, it is generally an interest within the scope of § 2033. These are shared interests that do not terminate at death, unlike a joint tenancy with the right of survivorship.
Tenancy in common
Community property
Successive Interests in Property
A owns BK-acre and leases it to B for 20 years. Both have interests that may be taxed under §2033.
If B dies before the lease term is up he has an interest in the property for the next 10 years and his gross estate will include the value of the leasehold.
If A dies before the lease term is up, he has a reversionary interest that will be included in his estate.
The interest in the property can be based upon the happening of an event as well.
If the property is A’s for life and then to B or B’s estate. There will be nothing includible in A’s gross estate under §2033, but if B were to die first, his estate would include the remainder interest in the property.
Insurance Proceeds Under §2033
An insurance policy is property and the value of the decedent’s interest is includable in the GE under §2033 – this applies to the ownership of a policy on the life of another person.
§2042 has sp