The Concept of Estate and Gift Tax

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Exam 2 : Estate & Gift Tax

1.) Determination of an estate tax by applying the steps involved in determining the estate tax and showing all work

2.) Determination of gift tax owed by applying the steps in determining a gift tax and showing all work

3.) Credit on prior transfers

* A credit is allowed against the estate tax for all or a part of the estate tax paid with respect to the transfer of property to the present decedent by or from a person who died within 10 years before, or within 2 years after the decedent * The purpose of this credit is to prevent successive taxes on the same property within a brief period. * If the transferee was the transferors surviving spouse, no credit is allowed with respect to property received to the extent that a marital deduction was allowed. * If the transferor died within two years before or within two years after the transferee’s death, the credit allowed for the tax on the prior transfer is 100 percent of the maximum amount allowable. * If the transferor predeceased the transferee by more than two years, the credit allowable is reduced by 20% for each full two years by which the death of the transferor preceded the death of the decedent. (see table on pg. 287)

4.) Estate tax deductions

* Allowable deductions include the deduction for charitable, public and similar gifts and the marital deduction.

5.) Administrative expenses

* To be deductible, administration expenses must be actually and necessarily incurred in the administration of the estate. * They include those expenses incurred in the (1) collection of assets, (2) payment of debt, and (3) distribution among the persons entitled to share in the estate. (Includes executors commissions, attorneys fees and misc. expenses.) * Administration expenses incurred for the individual benefit of the heirs, legatees, or devisees are never deductible. * Expenses incurred in obtaining from the probate court the award of a support allowance for the widow during administration of the estate are not deductible.

6.) Funeral Expenses

* Deductible funeral expenses are those amounts actually expended by the executor or administrator. * Expenses must be payable out of the decedents estate.
* If they are an expense of the community estate, only one half the amount expended is deductible * If the expenses are allowable against the estate of the decedent, they are deductible to the extent so allowable.

7.) Outstanding debts and claims

* The amounts that are deductible as claims against a decedents estate are those that represent personal obligations of the decedent existing at the time of his death. * Deductions of such claims exceeding the value of assets available for payment are disallowed to the extent they exceed the value of the property subject to the claims. Deductible Claims:

1. Alimony decreed by a court but past due (if payments are to continue after decedents
2. Commissions owed to trustee for services during decedents lifetime
3. The commuted value of support payments due a decedents wife for her release of her
Support and maintenance rights under a valid separation agreement
4. Amounts due on judgments against the decedent, including tort liabilities
5. Amounts due under guarantees executed by the decedent and not collectible from
Primary obligor
6. Amounts due on notes

8.) Casualty and theft losses

* Casualty and theft losses that occur during settlement of the estate are deductible to the extent they are not compensated by insurance. * Casualty and theft losses are not deductible for estate tax purposes if, at the time the return is filed, they had been claimed as in income tax deduction on the individual 1040. * Losses with respect to an asset are not deductible if they occur after distribution of the asset to the beneficiary. * Depreciation in value of intangibles, even though occasioned by...
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