648 MODULE 37 TAXES: GIFT AND ESTATE

be of any age and the trust can terminate at any age. To qualify, a beneficiary must have the
power to demand a distribution equal to the lesser of the donor's annual exclusion ($13,000),
or the beneficiary's pro rata share of the amount transferred to the trust each year.
2. Gift-splitting-a gift by either spouse to a third party may be treated as made one-half by each,
if
both spouses consent to election. Gift-splitting has the advantage of using the. other spouse's an-
nual exclusion and unified transfer tax credit.
EXAMPLE: H is married and has three sons. H could give $26,000 per year to each of his sons without making a
taxable gift if H's spouse (W) consents to gift-splitting.
H .ll"
Gifts $78,000
Gift-splitting (39,000) $39,000
Annual exclusion (3 x $12,000) (39.000) (39.000)
Taxable gifts $0 $0
3. Educational and medical exclusion-an unlimited exclusion is available for amounts paid on
behalf of a donee (1) as tuition to an educational organization, or (2) to a health care provider for
medical care of donee
4. Political gifts-an unlimited exclusion is available for the transfer of money or other property to
a
political organization.
5. Charitable gifts-(net of annual exclusion) are deductible without limitation
6. Marital deduction-is allowed without limitation for gifts to a donor's spouse
(1) The gift must not be a terminable interest (i.e., donee spouse's interest ends at death with no
control over who receives remainder).
(2) If donor elects, a gift of qualified terminable interest property (i.e., property placed in trust
with income to donee spouse for life and remainder to someone else at donee spouse's
death)
will qualify for the marital deduction if the income is paid at least annually to spouse and
the
property is not subject to transfer during the donee spouse's lifetime.
(3) In lieu of a marital deduction, gifts to an alien spouse are eligible for an annual exclusion of
up to $133,000 for 2009 ($~28,000 for 2008).
7. The tax computation reflects the cumulative nature of the gift tax. A tax is first computed on life-
time taxable gifts, then is reduced by the tax on taxable gifts made in prior years in order to tax the
current year's gifts at applicable marginal rates. Any available transfer tax credit is then subtracted to
arrive at the gift tax liability.
8. A gift tax return must be filed on a calendar-year basis, with the return due and tax paid on or before
April 15th of the following year.
9. A donor who makes a gift to charity is not required to file a gift tax return if the entire value of
the
donated property qualifies for a gift tax charitable deduction.
10. If the donor dies, the gift tax return for the year of death is due not later than the due date for
filing
the decedent's federal estate tax ~eturn (generally nine months after date of death).
11. The basis of property acquired by gift
12. Basis for gain-basis of donor plus gift tax attributable to appreciation
13. Basis for loss-lesser of gain basis or FMV at date of gift
14. The increase in basis for gift tax paid is limited to the amount (not to exceed the gift tax paid)
that
bears the same ratio to the amount of gift tax paid as the net appreciation in value of the gift bears
to the amount of the gift.
(1) The amount of gift is reduced by any portion of the $13,000 annual exclusion allowable with
respect to the gift.
(2) Where more than one. gift of a present interest is made to the same donee during a calendar
year, the $13,000 exclusion is applied to gifts in chronological order.
EXAMPLE adjusted basis of $80,000 as a gift. The
received property donor paid a gift. tax of $12, 000 on the transfer. Since the property was not appreciated in value, no giji tax
with a FMV of can be added in the basis computation. loan's basis for computing a gain is $80,000, while her basis for
$60,000 and an computing a loss is $60,000.