Source: https://www.bna.com/Gifts-Minors-Tax-p7482/
Timestamp: 2017-07-22 14:54:27
Document Index: 154117643

Matched Legal Cases: ['§ 1014', '§ 2503', '§ 2503', '§ 2503', '§ 2505', '§ 2503', '§ 2503', '§ 2503', '§ 2503', '§ 2503', '§ 2503', '§ 2513', '§ 2503', '§ 2503', '§ 678', '§ 2514', '§ 2041', '§ 2041', '§ 2041', '§ 2503', '§ 2503', '§ 7872', '§ 7872', '§ 135', '§ 135', '§ 135', '§ 529', '§ 529', '§ 529', '§ 529', '§ 529', '§ 529', '§ 529', '§ 529', '§ 529', '§ 2503', '§ 2642']

Gifts to Minors (Portfolio 846) | Bloomberg BNA
Tax Management Portfolio, Gifts to Minors, No. 846-2nd, analyzes in detail the major income tax and transfer tax consequences of gifts to or for the benefit of donees of an age less than majority.To view this Portfolio, take a free trial to Bloomberg BNA Tax & Accounting
Tax Management Portfolio, Gifts to Minors, No. 846-2nd, analyzes in detail the major income tax and transfer tax consequences of gifts to or for the benefit of donees of an age less than majority. The Portfolio, which is intended to familiarize the reader with the planning possibilities and the potential problem areas associated with gifts to minors, discusses both the tax and non-tax considerations that encourage or discourage such gifts. The Portfolio also contains a comprehensive description and evaluation of the various methods by which to make gift transfers to minors. Property management and tax planning considerations are included in the evaluations. For a discussion of related issues, see 845 T.M., Gifts. This Portfolio may be cited as Lischer, 846-2nd T.M., Gifts to Minors.
Henry J. Lischer, Jr., University of Iowa (B.B.A., 1967; J.D. 1970); New York University (LL.M. in Taxation, 1974); Judge Advocate, U.S. Marine Corps, 1970–73; Associate, Lillick, McHose & Charles, Los Angeles, California, 1974–75; Professor of Law, University of Alabama, 1975–78; Professor of Law, Southern Methodist University, 1978–present; Counsel, Malouf Lynch Jackson & Swinson, Dallas, Texas, 1982–84, 1985–present; Professor-in-Residence, Office of Chief Counsel, Internal Revenue Service, Washington, D.C., 1984–85; Fellow, American College of Tax Counsel; Academic Fellow, American College of Trust and Estate Counsel.
B. Transfer Tax Legislation Enacted in 2001
II. Factors Encouraging and Discouraging Gifts to Minors
A. Factors Encouraging Gifts to Minors
1. Non-Tax Factors
a. Provide the Minor Donee Experience in Handling Money
b. Implement Plan for Control of a Family Business
c. Support for Minor Children
(1) Possible Adverse Federal Tax Consequences
(2) Contrary Theory That Transferred Property Cannot Be Used to Discharge Parent's Obligation of Support
(3) Contractual Obligation for Goods or Services Provided to Minor
2. Transfer Tax Savings
a. Section 2503 Exclusions
b. Section 2505 Credit
c. Removal of Post-Gift Income and Appreciation from Transfer Tax Base
d. Tax-Exclusive Nature of Gift Tax
f. Minimize State Transfer Taxes
a. Tax Rate Provisions
b. Gains and Losses from Disposition of Property
c. Provisions Applying to Trusts
d. The "Kiddie Tax"
(2) Income to Which the "Kiddie Tax" Applies
(3) Parent to Whom Income Is Taxed
(4) Tax Calculation
(5) Section 1(g)(7) Election to Report on Parent's Return
(6) Alternative Minimum Tax Kiddie Tax
(7) Effective Planning for the Kiddie Tax
B. Factors Discouraging Gifts to Minors
3. Loss of Estate Liquidity
4. Loss of Dependency of Minor Donee
5. Adverse Effect on Minor of Controlling Too Much Money
6. Adverse Effect on Financial Assistance
7. Loss of § 1014 Step Up in Basis
8. Repeal of Estate Tax
B. Publicly-Traded Securities
C. Closely Held Business Interests
F. Annuities, Life Estates, and Remainder Interests
IV. Section 2503 Gift Tax Exclusions for Gifts to Minors
2. Section 2503(b) Exclusion Is Applied Annually on Per-Donee Basis
b. Availability of § 2503(b) Annual Exclusion for Gifts of Fractional Interests in Real Property
3. Determining the Identity and Number of the Donees
b. Gifts to Multiple Donees
c. Reciprocal Gifts
d. Number of Donees Not Increased by Intermediaries
4. Gifts from Revocable Trusts
5. Present Interest Requirement
6. Ascertainable Value Requirement
B. Section 2503(c) Exclusion for Transfers for the Benefit of Persons Less than Age 21 Years
C. Section 2503(e) Exclusion for Educational and Medical Expenses
D. Generation-Skipping Transfer Tax and the § 2503 Exclusions
V. Mechanics of the Transfer
A. Decisions by Donor
B. Total Value to Give
C. Timing of the Transfers
1. Section 2503(b) Gift Tax Annual Exclusion
2. The § 2503(e) Gift Tax Exclusion for Transfers for Educational and Medical Expenses
3. The § 2505 Gift Tax Credit
D. Form of the Transfer
1. Outright Transfer
2. Guardianship Transfer
3. Section 2503(e) Transfers for Educational and Medical Expenses
4. Uniform Acts for Gift Transfers to Minors
a. Uniform Gifts to Minors Act Transfers
b. Uniform Transfers to Minors Act Transfers
c. Tax Consequences Associated with Uniform Acts
(2) Section 2503(b)
5. Transfers in Trust
b. Transfers in Trust for the Benefit of Persons Less than Age 21 Years: The § 2503(c) Trust
(2) Statutory Requirements
(a) Requirement That Property and Income May Be Distributed to the Donee or May Be Used for the Donee's Benefit Before Donee Attains the Age of 21 Years
(i) Instrument Must Not Impose "Substantial Restriction" on Trustee's Discretion to Distribute Income and Principal to or for Benefit of Donee
(ii) Trust Provisions Authorizing Trustee to Make Distributions Do Not Constitute a "Substantial Restriction" if Trustee Is Given at Least as Much Discretion as Guardian Under Applicable State Law
(iii) "Spray" or "Sprinkle" Trust for Multiple Beneficiaries Does Not Qualify
(b) Requirement That Remaining Trust Principal and Income Pass to Donee at Age 21
(c) Requirement That Remaining Trust Principal and Undistributed Income Be Payable to Minor's Estate if Minor Dies Before Age 21
(3) Trusts That Qualify Under § 2503(c) with Respect to Income Interest Only
(4) Evaluation of the § 2503(c) Trust
c. The § 2503(b) Trust
(2) Present Interest Requirement
(b) No Mandatory Postponement of Income
(c) No Restrictions on Distribution of Income to Beneficiary
(d) Annual Distribution of Income
(e) Changes to Terms of Trust
(3) Ascertainable Value Requirement
(4) Evaluation of the § 2503(b) Trust
d. Herr and Konner Trusts
e. Levine Trust
f. Section 2503(b)/Uniform Gifts (or Transfers) to Minors Custodianship Combination
g. Crummey Trust
(1) Section 2503(b) Exclusion
(a) Number of § 2503(b) Exclusions
(ii) IRS Requires Beneficial Interest in Property
(iii) Reciprocal Demand Right Transfers
(iv) Potential Future Interest Problems and Coordination with § 2513 Gift Splitting
(b) Necessity of Notice to Powerholder of Demand Right
(c) Necessity of Reasonable Time Within Which to Exercise the Demand Right
(d) Availability of Property with Which to Satisfy the Demand Right
(e) Minimizing the Risk of Loss of the § 2503(b) Exclusion
(f) Crummey Trusts Executed Before September 12, 1981, and the Expanded § 2503(b) Exclusion
(2) Income Tax Consequences to Powerholder
(a) Consequences Under § 678
(b) Subchapter S Stock in Crummey Trust
(3) Gift Tax Consequences to Powerholder
(a) Lapse of Demand Right May Be § 2514 Taxable Gift to Extent Lapse Amount Exceeds Greater of $5,000 or 5% of Value of Property Subject to Power
(b) "Hanging" Crummey Powers
(c) "Cascading" or Successive Crummey Powers
(d) Aggregation of Crummey Powers
(4) Estate Tax Consequences to Powerholder
(a) Application of § 2041 to Demand Rights
(b) Application of § 2041 to Lapsed Demand Rights
(c) Section 2041(b)(2) Exception for Certain Lapses
(d) Application of § 2041 to "Hanging" Power
(5) Generation-Skipping Transfer Tax Consequences of Crummey Trusts
(6) Creditor Claims and Crummey Trusts
(7) Crummey Rights as to a Special Needs Trust
(1) Use of Crummey Power May Avoid Gift Tax on Transfer in Trust of Insurance Policy
(2) Subsequent Premium Payments by Donor May Qualify for § 2503(b) Exclusion
(3) Premium Payments by Employer on Group Term Life Insurance Owned by a Trust May Qualify for § 2503(b) Exclusion
(4) Income Tax Consequences of Crummey Trust Holding Life Insurance
(5) Estate Tax Consequences of Crummey Trust Holding Life Insurance
i. Clifford Trust
j. Mandatory Accumulation Trust
k. Incentive Provisions in Trust Instrument
l. Estate Tax Consequences to Parent Serving as Trustee or Custodian
6. Family Business Entities
b. Family Limited Partnerships
(2) General Structure of Family Limited Partnership
(3) Gift Tax Consequences
(4) Estate Tax Consequences
(5) Income Tax Consequences
(6) Protection of Partnership Assets from Future Creditors
(2) Limitations on Subchapter S Corporation Shareholders and Special Rules
(3) Income Tax Consequences
(5) Estate Tax Consequences
e. Family Limited Partnerships Compared with Limited Liability Companies and Subchapter S Corporations
7. Below-Market Loans
b. Below-Market Loans Under § 7872
(1) Applicability of § 7872 to Gift Loans
(2) Tax Consequences of Below-Market Gift Demand Loans
(a) Gift Tax Consequences
(b) Income Tax Consequences
(3) Tax Consequences of Below-Market Gift Term Loans
8. Incomplete and Partial Transfers
9. Qualified U.S. Savings Bonds
a. Background on U.S. Savings Bonds
b. Overview of § 135
c. Requirements of § 135
d. Coordination with Other Code Provisions
e. Exclusion Limited to Qualified Education Expenses
f. Modified Adjusted Gross Income Limitation
g. Example of § 135(b)(1) and (2) Limitations
10. Section 529 Qualified Tuition Programs
(1) Prepaid Tuition Programs
(2) Section 529 Savings Accounts
c. Requirements for a Qualifying § 529 Savings Account
d. Powers of Account Owner
e. Differences Between State § 529 Savings Account Programs
f. Tax Consequences Associated with a § 529 Savings Account
(1) Tax Consequences at Contribution
(a) Income Taxation
(b) Federal Gift Taxation
(c) Federal Generation-Skipping Transfer Taxation
(2) Tax Consequences of Distributions
(a) Qualified Distributions
(b) Distributions That Are Not Qualified Distributions
(3) Income Tax Loss at Termination
(4) Federal Estate Tax Consequences
g. Investment Control and Strategies
(1) Investment Performance and Tax Benefits
(2) Contributions to § 529 Savings Account
(3) Changing Investment Options
h. Changing the Account Owner
i. Changing the Beneficiary
j. Other Uses of § 529 Savings Account
(1) Transfer of Uniform Gifts (or Transfers) to Minors Act Funds to § 529 Savings Account
(2) Trust-Owned § 529 Savings Account
k. Employer-Funded § 529 Savings Account
l. Planning Issues Associated with § 529 Plan
11. Section 530 Coverdell Educational Savings Accounts
VI. Planning Issues
A. Split Gifts between Spouses
B. Payment of the Gift Tax
C. Selection of Gift Property
2. Section 1014 Step Up in Adjusted Basis
3. Timing Considerations
D. Deathbed Gift Transfers
E. Planning for Disabled Child
F. Planning for Education of Minor
1. Planning to Maximize Financial Aid to the Student
2. Vehicles Through Which to Fund Education Expenses
G. Distribution of Property to Donee at Young Age
H. Planning During Phase-Out of Estate and Generation-Skipping Transfer Taxes
Worksheet 1 Determining Net Worth Before and After Gift
Worksheet 2 Determining Net Income Before and After Gift
Worksheet 3 Comparative Analysis of Gifts to Minors Transfer Devices
Worksheet 4 Table of Inflation-Adjusted Amounts
Worksheet 5 Table of Educational Savings Options
Worksheet 6 Sample § 2503(c) Trust
Worksheet 7 Sample § 2642(c) Trust
Worksheet 8 Sample Trust Provision Granting Crummey Demand Powers to Multiple Beneficiaries
Worksheet 9 Uniform Gifts to Minors Act (1966)
Worksheet 10 Uniform Transfers to Minors Act (1986)