PART 5

First, for federal gift tax purposes, Fisher could split the $25,000 cash gift to his son in half, reducing it to $12,500. A gift made by one spouse to any person (other than the other spouse) can be treated as though one-half was made by the donor and one-half was made by the spouse, provided the spouse consents to the gift. In this case, Mrs. Fisher did join in the gift.

In addition, each donor is entitled to an annual exclusion of $10,000 for gifts of a present interest to each donee. The cash gift is a gift of a present interest, and Fisher made no other gifts to his son this year.

Second, for federal gift tax purposes, the value of the gift of stock to Fisher’s brother is its market value of $52,000. Again, Fisher could split the gift with his wife, reducing the amount given from each spouse to $26,000. Fisher could deduct the $10,000 annual exclusion, leaving a balance of $16,000.

Third, there would be no federal gift tax on the gift of stock to the XYZ Hospital. In computing his or her taxable gifts, a donor may take an annual exclusion and deduct in full the balance of all gifts to qualified charitable institutions.

Fourth, lifetime gifts between spouses are not taxable. There is an unlimited gift tax marital deduction. It is no longer necessary to file a gift tax return when one spouse makes an otherwise taxable gift to the other spouse.

Mrs. Fisher would have taxable gifts of $18,500 during this year.

Mrs. Fisher’s share of the $25,000 cash gift to her son is $12,500. From this $12,500, Mrs. Fisher may deduct her $10,000 annual exclusion, leaving a net gift of $2,500.

Mrs. Fisher’s share of the $52,000 gift of stock to Fisher’s brother is $26,000. From this amount, Mrs. Fisher may deduct her $10,000 annual exclusion; $16,000 is her net gift.

Since all gifts to third parties must be split between the spouses if any one gift is to be so split, one-half of the gift to XYZ Hospital would be considered made by Mrs. Fisher. However, all gifts to qualified charities are fully deductible for gift tax purposes.

2.		The unified nature of the estate and gift tax system reflects the fact that the tax is imposed on all property transferred in a taxable manner regardless of when the transfers occur. The tax is imposed at one set of rates, regardless of whether the transfer takes place during the donor’s lifetime or is testamentary. Thus transfers should move the donor up the progressive rate structure as they occur. For this reason current gifts are added to prior gifts to determine the tax bracket applicable to such gifts. Lifetime gifts are added to the taxable estate of a decedent to determine the bracket(s) applicable to testamentary bequest.
8.		Henry can give each child $20,000 and elect to treat it as a split gift with Cecelia. Therefore he will file a gift tax return and make the election to have Cecelia split the gift with him. Although a gift tax return must be filed in order to make this election, no tax will be due. This is because when a person makes a gift and splits it with his or her spouse, it is treated as if $10,000 were given to the donee by each spouse, although, in fact, the gift was made by the donor-spouse. Therefore Henry can give a total of $140,000 to his children without exceeding the annual exclusion.
9.		In this situation, neither the gift of the trust income to Nancy nor the gift of the remainder or corpus to Nancy’s children is eligible for the annual exclusion. A present-interest gift that qualified for the annual exclusion generally transfers an immediate right to possession or enjoyment of the property or property interest to the donee. Where a restriction or postponement is placed on the donee’s right to the use, possession, or enjoyment of the property or interest therein, the gift is one of a future interest. In this situation, the income is distributable only at the discretion of the trustee, which means that the income may be accumulated if the trustee so desires. Thus Nancy has no immediate right to the use and enjoyment of the income; therefore the income interest is a gift of a future interest. Likewise, the use and enjoyment of the remainder by Nancy’s children is postponed until Nancy’s death, making it a gift of a future interest.
11	a.	Yes. An outright gift of $15,000 is a present-interest gift. Since the annual exclusion of $10,000 may be taken, Bill has made a taxable gift of $5,000 to his son, Bill, Jr.
	b.	Bill has made two gifts in this case. The gift of income to his daughter (which can be measured as the right to receive income for life based on her life expectancy) qualifies for the annual $10,000 exclusion. The gift of the remainder interest to Bill’s son is a future-interest gift, and although it can be valued actuarially at the time of the gift, no annual exclusion will be allowed since the son cannot enjoy and possess the property until his sister dies.
	c.	Since the trustee can accumulate income and is not required to distribute it, such income may be added to the principal to increase the remainderman’s interest. Since this is the case, no annual exclusion will be allowed for either the gift to the income beneficiary or the gift to the remainderman.
	d.	This transfer will qualify for the annual exclusion as a transfer to an IRC Sec. 2503(c) trust. Although the trustee may accumulate trust income until the beneficiary reaches age 21, the entire principal must be distributed to him at that time. IRC Sec. 2503(c) permits an exception to the general rule denying an annual exclusion when income is accumulated. However, the principal must become distributable when the beneficiary attains age 21.
19.	a.	and b. The total taxable gifts made by Fisher and his wife this year would amount to $18,500, as shown below:

Gift		Recipient	Mr. Fisher’s Taxable Gifts	Mrs. Fisher’s Taxable Gifts
Value of gift Less annual exclusion Net gift Value of gift Less annual exclusion Net gift Value of gift Less annual exclusion Less charitable deduction Net gift Value of gift Less annual exclusion Less marital deduction Net gift	$25,000 $52,000 $23,000 $50,000	Son Brother XYZ Hospital Mrs. Fisher	$12,500 ( 10,000) $ 2,500 $26,000 ( 10,000) $16,000 $11,500 ( 10,000) ( 1,500) –0– $50,000 ( 10,000) ( 40,000) –0–	$12,500 ( 10,000) $ 2,500 $26.000 ( 10,000) $16,000 $11,500 ( 10,000) ( 1,500) –0–

20.	a.	i.	Total gifts for year		85,000
		ii.	Subtract annual exclusion(s)		( 20,000)
		iii.	Gifts after subtracting exclusion(s)		65,000
		iv.	Subtract charitable deduction		( 15,000)
			Taxable gifts		$ 50,000

			Compute Gift Tax Payable

		v.	Gift tax on all taxable gifts		$ 10,600
		vi.	Gift tax credit for 1992		192,800
			Gift tax payable		-0-
	b.	i.	Gift tax on all taxable gifts regardless of when made	$38,800
		ii.	Gift tax on all taxable gifts made prior to present gifts	( 23,800)
		iii.	Subtract b(ii) from b(i)		$15,000
		iv.	Enter remaining unified credit ($192,800 – $23,800)	$169,000
		v.	Subtract b(iv) from b(iii) to obtain gift tax payable		-0-