Knack Primer
A gift occurs when a voluntary transfer for less than full consideration or compensation occurs from a giver to a donee. A valid gift must satisfy the following criteria, to wit:
- The donor intends to make the voluntary transfer.
- He or she is capable to do so.
- The donee is able to receive the gift and has to take delivery.
- The donor cedes all control over the property given.
Fonts of gifts include:
- Direct: the donor transfers cash or property directly to the donee.
- Indirect: the donor makes a take for the donee’s benefit. Troy pays his girlfriend’s credit card balance, as an example.
- Complete: in making a transfer to the donee, the backer gives up all right and dominion over the property.
- Incomplete: in making a transfer to the donee, the donor fails to give up all rule over the property. If Helmut places money into a revocable trust, then he has made an incomplete gift as he keep possession ofs the right to control the ultimate disposition of what is in the trust. By contrast, should the trust become irrevocable, then its contents constitute a executed gift.
- Reversionary Interest: gifts that the donor transfers to the donee which revert back to the donor. Their benefit to the donee is their present value rather than fair market value. An example would be when a supporter places money in a trust for a specific time period for the donee’s benefit. At the end of the term, the money or property reverts in return to the donor. The value of the gift is less than the value of the property in this instance.
- Net Gift: whereas in most illustrations the donor is responsible for any gift tax, in the case of a net gift, the donee would be.
Gift Valuation
When Does the Gift Tax On?
Once one has determined a transfer to be a gift, the next step is to determine at what point the gift tax will apply to that give.
Types of Exemptive Relief
The Annual Exclusion
Gifts up to a certain value per donee per year are subject to an
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One must file a gift tax return ((IRS Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return)) if one pays gifts that exceed the annual exclusion, are of a future interest or exceed the unified credit amount. When deciding whether or not one owes gift tax, one needs to determine what gifts he or she gave for the year, whether or not they are exempt from give-away tax or within the annual exclusion amount and to what extent they may be offset by the unified credit amount for the year in consideration b questionable. Above all, one should consult a tax professional when undertaking any tax planning decisions.