Would you do a gift tax return in this situation?

[bgiez]

The taxpayer gave stock with a FMV of $20K and a basis of $76K to her daughter, then the taxpayer died the next day. That was the only asset the taxpayer owned other than a house she owned jointly, with rights of survivorship, with her daughter. The FMV of the house is $150K.

It seems pointless to do the gift tax return, and the taxpayer isn't around to sign it, anyway.

On a side note, the taxpayer inherited the stock from her husband, and when she sold some of it prior to gifting the rest to her daughter, the previous tax preparer did not use the stepped up basis. The difference was about $60 a share. Too bad the years are closed; the correct basis would have saved the taxes on about $70K. Yikes!

[taxea]

Was the gift documented? Did mom have a will? Why did the transaction take place when it did?

[mastertaxguy]

Form 709 gift tax return.

1. Short answer is yes (in my view). But, you as a preparer don't make that decision: that is up to TP's executor/personal representative/successor trustee or person(s) who received the property, each of whom could face transferee tax liabilty down the road.
2. A gift tax return is due. Your facts are not specific as to the date of the gift so I have to guess the gift was in 2012. Keep in mind that gifts within 3 years of death are part of decedent's taxable estate (IRC Sec. 2035)
3. Since the TP had prior gifts which, from the facts, were the subject of gift tax returns, a gift tax return might be expected.
4. There was also a gift, probably, when the house was changed from TP name only (probably after death of spouse) to TP and daughter as to a 1/2 interest. Depending on how that was structured, that gift may be of a future, not present, interest.
5. Facts stated do not fully indicate value of the estate. It appears there were "sizeable" gifts opost 1976 which, of course, are added back into the estate for Federal estate tax purposes. My own view is that even if there is no taxable estate under the most liberal valuations, if the estate has a taxable value more than $1.5 million, I recommend/prepare form 706 and have it filed. It starts the clock ticking and helps with future valuations.
6. 709 can be signed by fiduciary of mother's estate or, if there is none, by daughter as heir. Form 56 should also be filed.

[Nashville]

Running my mouth for awhile...

The taxpayer gave stock with a FMV of $20K and a basis of $76K to her daughter, then the taxpayer died the next day. That was the only asset the taxpayer owned other than a house she owned jointly, with rights of survivorship, with her daughter. The FMV of the house is $150K.!

From the facts given, yes. Does not state daughter was married, where a gift to the joint recipients would have bailed out of the gift tax requirement. So the gift is $7K over the thresshold. I agree it is meaningless but she has used up $7K of her estate tax credit with this transaction.

It seems pointless to do the gift tax return, and the taxpayer isn't around to sign it, anyway.

On a side note, the taxpayer inherited the stock from her husband, and when she sold some of it prior to gifting the rest to her daughter, the previous tax preparer did not use the stepped up basis. The difference was about $60 a share. Too bad the years are closed; the correct basis would have saved the taxes on about $70K. Yikes!

Whereas her husband may have had 100% title to the stock for ownership purposes, the marital exemption means that the best accession "step up" is only half the amount otherwise calculated.

One of the respondants stated that gifts within three years of death are valued as part of the estate. I am aware that states write such laws so they can take back these gifts under certain circumstances. Is this true for federal estate taxation as well? I didn't think so but could be wrong. If this is true there is absolutely no need to file a gift tax return for a gift given one day before death.

[mastertaxguy]

3 year gifts in taxable estate

See TTB 21-31 (deluxe), also IRC Sec 2035 as noted earlier. This is not a state issue, necessarily; it is a FEDERAL issue.

[Nashville]

I stand corrected

Thanks MasterGuy - didn't know that...appreciate being corrected.

Good cite --

[bgiez]

answers to taxea's questions

Was the gift documented? Did mom have a will? Why did the transaction take place when it did?

Yes, the gift was documented; at least you can see the transaction through the reporting documents. The daughter sold the stock the same day as the transfer. This was done on the advice of the attorney (both the transfer and the sale) as the mother's death was imminent and they needed funds for funeral and other expenses because there was no life insurance. The daughter has had POA for the mother for the last few years.

I did the gift tax return in 2005 for the interest in the house; the taxable gift was $96K. The daughter has been living there with her mother since before the transfer.

There are no other assets other than stocks with about $6000 current FMV. Dividends are under $200/year.

[bgiez]

answer to mastertaxguy's comments

1. Short answer is yes (in my view). But, you as a preparer don't make that decision: that is up to TP's executor/personal representative/successor trustee or person(s) who received the property, each of whom could face transferee tax liabilty down the road.
2. A gift tax return is due. Your facts are not specific as to the date of the gift so I have to guess the gift was in 2012. Keep in mind that gifts within 3 years of death are part of decedent's taxable estate (IRC Sec. 2035)
3. Since the TP had prior gifts which, from the facts, were the subject of gift tax returns, a gift tax return might be expected.
4. There was also a gift, probably, when the house was changed from TP name only (probably after death of spouse) to TP and daughter as to a 1/2 interest. Depending on how that was structured, that gift may be of a future, not present, interest.
5. Facts stated do not fully indicate value of the estate. It appears there were "sizeable" gifts opost 1976 which, of course, are added back into the estate for Federal estate tax purposes. My own view is that even if there is no taxable estate under the most liberal valuations, if the estate has a taxable value more than $1.5 million, I recommend/prepare form 706 and have it filed. It starts the clock ticking and helps with future valuations.
6. 709 can be signed by fiduciary of mother's estate or, if there is none, by daughter as heir. Form 56 should also be filed.

1) transferee tax liablity? It's been a long time since my class on 706 & 709, and I've only done 2 709s in the 19 years I've been preparing and never a 706.
2) the gift of stock was in 2012.
3&4) the only prior gift was the house in 2005 for which a gift tax return was prepared with a taxable gift of $96K.
5) definitely under $1.5 million. House has dropped significantly in value since the gift in 2005 (about $160K now vs $215K in 2005). Other than the stock which was transferred, there is a little more stock with a current fmv of about $6K.

Thanks for the information.

[bgiez]

reply to Nashville

From the facts given, yes. Does not state daughter was married, where a gift to the joint recipients would have bailed out of the gift tax requirement. So the gift is $7K over the thresshold. I agree it is meaningless but she has used up $7K of her estate tax credit with this transaction.

Daughter is married, but only her name is on the transfer docs.

Whereas her husband may have had 100% title to the stock for ownership purposes, the marital exemption means that the best accession "step up" is only half the amount otherwise calculated.

Marital exemption - as in the706? As I mentioned in a reply to another responder, I have never done a 706 other than in tax class about 13 years ago. If you don't use it you lose it.

One of the respondants stated that gifts within three years of death are valued as part of the estate. I am aware that states write such laws so they can take back these gifts under certain circumstances. Is this true for federal estate taxation as well? I didn't think so but could be wrong. If this is true there is absolutely no need to file a gift tax return for a gift given one day before death.

[Nashville]

Out the window

Bgiez, I stand corrected on the three year rule.

Taking that into consideration, I believe filing a gift tax return is now even more unnecessary than before.

Unless there is some zany requirement to file and consider this a "gift" even though it is valued in the estate. If this is true, I might ask about the basis of the property. Valued in the estate means "stepped up." "Gift" means lower of origin's basis or FMV."

I appreciate your confidence, but I'm afraid you may have loaded your treasure onto a sinking ship...sorry.

[bgiez]

community property vs common law

Whereas her husband may have had 100% title to the stock for ownership purposes, the marital exemption means that the best accession "step up" is only half the amount otherwise calculated.

Michigan is a common law state, and from what I've read, although I'm obviously not an attorney, what's in his name only is his and therefore when he dies, she inherits all of it, not just half. So I'm interpreting this to mean that all of it gets stepped up basis. Am I wrong? (Wouldn't be the first time