Page 117 - TaxAdviser_2022

TAX CLINIC

4. GST annual exclusion — advise taxpayers to confirm legal title for health, education, maintenance, and
timing matters with their attorney. support. Under Regs. Sec. 25.2513-1(b)
For a gift to trust to qualify for the GST (4), splitting a gift in trust where a
annual exclusion under Sec. 2642(c), the Example 2: A taxpayer represents spouse is the beneficiary is not allowed
trust must be a direct skip trust where that he made a $30,000 gift of com- when the spouse has an undefined inter-
(1) no portion of the trust can be for the munity property to his child in 2021. est in the trust. This does not preclude
benefit of any person other than the sole On Form 709 you report a gift by splitting Crummey power gifts, but it is
beneficiary; (2) the trust is includible in each spouse of $15,000, make no generally problematic for gifts in excess
the beneficiary’s estate if the trust does gift-splitting election, and report zero of the Crummey withdrawal rights.
not terminate before the individual dies; taxable gifts. Upon audit, it is discov-
and (3) the transfer absorbs the gift tax ered that the gift was the taxpayer’s 8. Presentation of GRATs
annual exclusion. The gift tax annual ex- separate property. Consequently, the Grantor retained annuity trusts
clusion is applied chronologically, and so taxpayer made a gift of $30,000 — (GRATs) are reported in an unconven-
tax preparers must be aware of transfer $15,000 of which is taxable. This tional way on the gift tax return. The
dates to calculate the proper exclusions. could have been avoided if a gift- term of the GRAT opens an estate tax
splitting election had been made. inclusion period (ETIP), and transfers
Example 1: A grandmother makes subject to an ETIP are reported on
a cash gift to a trust for the benefit If there is any doubt as to the charac- Schedule A, Computation of Taxable
of her three grandchildren in April ter of the assets, taxpayers may consider Gifts, Part 1, Gifts Subject Only to Gift
2021. The trust has withdrawal rights electing to gift-split to avoid such unin- Tax, of Form 709 at the time of the
that allow the grandchildren to each tended consequences. transfer. But recall the advice in point 1
withdraw $15,000 of the gift. The above, that it is best practice to make an
gift absorbs the gift tax annual exclu- 6. Gift-splitting in the year of affirmative election with respect to the
sion for each grandchild but not the divorce or death allocation of GST exemption.
GST annual exclusion because the Typically, when taxpayers elect to gift- There is no box to check for the elec-
trust does not meet prong 1 above. split, every gift is deemed to be made tion in Part 1. Even though an allocation
Then, in July 2021, the grandmother one-half by each spouse. However, in a of GST exemption will not be effective
gifts $15,000 to a trust for one of year in which a spouse dies or the couple until the end of the ETIP, a leading
the grandchildren that meets prongs divorce, a taxpayer can split gifts with his practice is to make the election in the
1 and 2 above. Despite the fact that or her spouse only during the time they year of the initial transfer so that the
the gift to the trust in July would were married to each other. For example, election is not missed when the GRAT
otherwise qualify for the GST annual assume a married taxpayer makes gifts term ends. Additionally, GRATs are
exclusion, the annual exclusion with to his son in March and September. The subject to the disclosure rules of Regs.
respect to that grandchild was used taxpayer’s spouse dies in August. On the Sec. 301.6501(c)-1(e) and need to have
for the April transfer; thus, no GST taxpayer’s gift tax return, only the March additional information provided in the
annual exclusion is available for the gift could be split with the spouse since year of the transfer.
gift to the trust in July. the taxpayer was not married at the time
of the September gift. 9. Reporting and supporting the
DSUE
5. Are they really community 7. Gift-splitting contributions to If a taxpayer has a deceased spouse
property assets? a SLAT (who died after Dec. 31, 2010), he
Gifts of community property are Another gift-splitting complication oc- or she is eligible to use the deceased
deemed owned one-half by each spouse curs when a transfer is made to a trust spousal unused exclusion (DSUE)
and should be reported as such on the where the spouse is a beneficiary. Lately, of the deceased spouse, assuming the
gift tax return. The determination of this has become more of an issue as tax- DSUE election was made on a timely
community property versus separate payers have been making gifts to spousal filed and complete Form 706, United
property may be unclear for taxpayers lifetime access trusts (SLATs) to take States Estate (and Generation-Skipping
who have moved between community- advantage of the temporarily increased Transfer) Tax Return. If this is the case,
property and separate-property states. applicable exclusion amount. SLATs are complete the checkbox on Part 1, line
Tax preparers need to know the legal designed so that the spouse is a benefi- 19, of Form 709, along with Schedule C,
status of property transferred and should ciary, usually with a right to distributions “Deceased Spousal Unused Exclusion

8 March 2022 The Tax Adviser