Posted by: Michael P. Pancheri
in Gift Taxes on Nov 14, 2009
There was a time when the IRS insisted that the annual gift-tax exclusion (currently $13,000) would not apply to gifts made directly from a revocable living trust. The theory was that the annual gift-tax exclusion was available only to individuals, and a trust was not an individual.
As a result, many professionals advised their clients to take the property back from their revocable living trust before gifting it to the intended beneficiary, thereby insuring that the annual gift-tax exclusion would apply to the gift.
Some people would question why it would make a difference one way or the other, since the unified credit would shelter the gift from gift taxes in any event. For many people, that's true. However, for those individuals with large estates, once the current unified credit against gift taxes has been exhausted (currently $1 million), the loss of each annual gift-tax exclusion represented a potential tax of roughly 45% of the value of the gift.
Even if the unified credit against gift taxes is not exhausted during the grantor's lifetime, if the gift was made within three years of the grantor's death, the IRS insisted that the value of the gift be brought back into the grantor's estate for estate tax purposes. At that time, the value of the gift was included with all other assets of the grantor and taxed at the appropriate estate tax rate.
Fortunately, the Taxpayer Relief Act of 1997 changed all that. It added Section 2035(e) of the Internal Revenue Code, which stated that transfers from a revocable living trust are deemed to be transfers made directly by the grantor. Just to clarify, a grantor trust is a livng trust whereby the grantor retains the right to amend or revoke the trust; i.e., a revocable living trust.
Posted by: Michael P. Pancheri
in Gift Taxes on Nov 09, 2009
Commerce Clearing House (CCH) has projected that the annual gift-tax exclusion will remain at $13,000 for 2010. It has also projected that the first $134,000 of gifts to a non-citizen spouse will not be included in the donor spouse's annual taxable gifts under I.R.C. Section 2503 (taxable gifts) and Section 2523(i) (gifts to spouse).
CCH's projections are based upon the increase in the Consumer Price Index for All Urban Consumers for the 12-month period ending August 31, 2009.
It should be noted that these projections are not official. The official IRS figures will be released before year end.
