Monthly Archives: March 2010

Tax and Legal Issues Arising In Connection With the Preparation of the Federal Gift Tax Return, Form 709 — Treatise

With little Congressional interest in increasing the $1 million lifetime exemption, familiarity with gift tax is important in estate planning. This seminar will first consider legal requirements for a completed gift. Filing requirements will then be reviewed. Gifts exempt from the gift tax, gifts for which a deduction is available, and split gifts will be discussed. Current valuation issues will be examined in connection with determining the value of gifted assets. The importance of expert appraisals and adequate disclosure will be emphasized. Penalties, deficiencies and preparer penalties will be reviewed, as will issues involving compliance, collection and liens. The relationship with the estate tax will be analyzed. Finally, a completed Form 709, illustrating concepts presented, will be studied in detail.
The Federal Gift Tax Return Form 709: Tax & Legal Issues

1. Nature of gift tax; filing requirements; extensions; bond 8. Valuing gifts of real estate & closely held companies
2. Whether to file if uncertain as to whether gift complete 9. Valuation discounts and adequate disclosure
3. Statute of limitations on assessment and collection 10. Importance of expert appraisal; preparer penalties
4. Annual exclusion gifts; reciprocal transfers; minors 11. Penalties, interest, liens and transferee liability
5. Exempted transfers: political, educational & medical 12. Assessment, deficiencies & collection; basis issues
6. Gifts to spouses and marital deduction; charitable gifts 13. Relationship with the Estate Tax; “gross up” rule
7. Split gifts: manner and time of consent, liability issues 14. Review of completed Form 709 gift tax return Continue reading

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Installment sales of assets to grantor trusts indirectly exploit income tax provisions enacted to prevent income shifting at a time when trust income tax rates were much lower than individual tax rates. Specifically, the technique capitalizes on different definitions of “transfer” for transfer tax and grantor trust income tax purposes. The resulting trusts are termed “defective” because the different definitions of “transfer” result in a serendipitous divergence in income and transfer tax treatment when assets are sold by the grantor to his own grantor trust. Continue reading

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Use of Disclaimers in Pre and Post-Mortem Estate Planning

Disclaimers can be extremely useful in estate planning. A person who disclaims property is treated as never having received the property for gift, estate or income tax purposes. This is significant, since the actual receipt of the same property followed by a gratuitous transfer would result in a taxable gift. Although Wills frequently contain express language advising a beneficiary of a right to disclaim, such language is gratuitous, since a beneficiary may always disclaim.

For a disclaimer to achieve the intended federal tax result, it must constitute a qualified disclaimer under IRC §2518. If the disclaimer is not a qualified disclaimer, the disclaimant is treated as having received the property and then having made a taxable gift. Treas. Regs. §25.2518-1(b). Under the EPTL, as well as under most states’ laws, the person disclaiming is treated as if he had predeceased the donor, or died before the date on which the transfer creating the interest was made. Neither New York nor Florida is among the ten states which have adopted the Uniform Disclaimer of Property Interests Act (UDPIA). Continue reading

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NYS Department of Taxation and Finance Announces It Will Allow Separate QTIP Election

In certain cases, an estate is required to file a return for New York State estate tax but is not required to file a federal return. This may occur if there is no federal estate tax in effect on the decedent’s date of death or if the decedent died while the federal estate tax was in effect but the value of his or her gross estate was too low to require the filing of a federal estate tax return. In either instance, and if applicable, the estate may still elect to take a marital deduction for Qualified Terminal Interest Property (QTIP) on a pro-forma federal estate tax return that is attached to the New York State estate tax return. Continue reading

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The filing of a federal tax lien can adversely affect the taxpayer’s ability to secure credit, dispose of property and conduct business. Ultimately, the property may be levied upon by the IRS and sold to satisfy the underlying tax liability. Fortunately, in many cases the filing of a tax lien is not a fait accomplis. For example, at times IRS will voluntarily withdraw a notice of tax lien: Continue reading

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Avoiding Liability Risks of Single-Member LLCs

Businesses have traditionally limited exposure to liabilities by forming a group of corporations or subsidiaries to insulate assets. Although effective, these structures are complicated and burdensome, often requiring separate boards of directors and annual meetings. Single-member LLCs (SMLLCs), which require few formalities, can also be utilized to insulate liabilities of various divisions of a business, or even the assets of a single taxpayer, such as an individual or corporation. Continue reading

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EPTL § 7-1.3 provides in stark language that “[a] disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” This prohibition against self settled spendthrift trusts has led some New York residents to create asset protection trusts in exotic places such as the Cayman or Cook Islands, or in less exotic ones, such as Bermuda or Switzerland. Continue reading

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