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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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A man gives a gift in 1960, then worth $70,000, and he dies

Customer Question

A man gives a gift in 1960, then worth $70,000, and he dies in 2001, when the property has gone up in value to $1 million. He also leaves $3 million at death. This 2001 death is after the gift and estate taxes were unified. That gift will be included in calculating to see if he has used up his unified credit of $675,000. Will that gift be counted as $70,000 toward his unified credit or will it be counted as $1 million, thus using up the unified credit?
Submitted: 6 years ago.
Category: Tax
Expert:  Jon Andrews replied 6 years ago.

The date of death value of the prior gift should not be considered as a part of this calculation. The act of making the gift in 1960 removed that asset from the estate.

 

You could encounter issues if a gift tax return was not filed relative to the 1960 transaction. That could lead the IRS to determine that a gift was not actually made at that time and/or that $70,000 was not the correct value, etc.

 

jon

Customer: replied 6 years ago.
JON, DID YOU EVER GET PAYMENT FOR THIS ANSWER? I DO NOT REMEMBER WHETHER I EVER RESPONDED OR NOT....JUST NOT SAW THIS AS CLOSED.
Expert:  Jon Andrews replied 6 years ago.

No, it does not appear that it was "accepted"

 

jon

Jon Andrews and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
I am sorry. I never saw this till yesterday and it was marked closed. At least I do not remember seeing it. I will send this reply, then an accept for your answer. If you can comment on the following questions, I will accept and send a bonus for each. Q1: If the man who gave the gift, call him Mr. Jones, purchased the property in 1940 for $15,000 then gave it to his grandson in 1960 when it had gone up in value to $70,000, which value would have been used to calculate the 1960 gift tax...$15,000 or $70,000?
If the grandson sold it in 1970 for example, I expect it would have a basis of $15,000 for capital gains, but would it have that value to determine the gift tax for 1960 or would the gift tax be based on its $70,000 value? ....I realize that the older man, Mr. Jones, would have had a $30,000 lifetime gift exclusion back in 1960. Q2: If he died in 2001, after the unified code, that may be irrelevant. Would that 30K exclusion be replaced by the unified credit? ....Q3: Also if the grandson only has a deed, how can he verify that any gift tax due was paid? Would his grandfather's lawyer who drew up the deed keep such documents, or the older man's accountant? Would the grandfather have gotten a receipt of any type to keep?
Expert:  Jon Andrews replied 6 years ago.

The value for gift tax purposes in 1960 would be the fair market value at that time, i.e. $70,000.

 

The grandson's basis would be $15,000 plus any gift tax paid on the gift.

 

The death in 2001 is only relevant to this property if he did NOT make the gift in 1960.

 

The best possibility of finding out if gift tax was paid or if a gift tax return was filed would be to refer to the lawyer and accountant. One or the other of them should have that information. The grandfather SHOULD have a copy of the gift tax return, if one were filed, and a copy of the canceled check, if any taxes were paid - but it seems more likely that the information would be available from the professionals.

 

jon

Jon Andrews and other Tax Specialists are ready to help you
Customer: replied 6 years ago.

Thank you. I will reply then accept with bonus. If local professionals are also passed away and no documentation of the gift can be located, wouldn't the IRS have some record of the documentation from 1960? How would the grandson obtain the record from them? Would he have standing to ask for it or would the executor of the grandfather's estate have to request it? Even though that is far back, wouldn't they have some computer record?

Expert:  Jon Andrews replied 6 years ago.

The IRS "should" have a record. The executor should have standing to request it. The executor might also have a record of it independently of the original professionals or the IRS. I am not sure if the donee has standing to request it or not from the IRS.

 

jon

Jon Andrews and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
As you said: If this was a GIFT that the grandfather purchased in 1940 for $15,000 and gave to his grandson in 1960 when the value had risen to $70,000, then if the grandson wanted to sale the property later... that the grandson's basis would be $15,000 plus any gift tax paid on the gift....... But if this was not a gift but an INHERITANCE in 1960, how would the basis be different? For example, if the property was appraised in 1960 at $65,000 (a little low but a different number), appraised for estate tax purposes, would the grandson's basis for capital gains 10 years later be $65,000 plus estate tax paid on the property, or would it be $15,000 plus that estate tax, or would the basis be just $65,000? I am sending this reply then an accept for the last answer. Thanks again.
Expert:  Jon Andrews replied 6 years ago.

If it was an inheritance, then the basis would be its value on the date of death or the alternate valuation date.

 

jon

Jon Andrews and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
I will reply then accept. This next question may deserve a bonus.

If the gift property was worth $70,000 in 1960 when it was given then $30,000 would be available as a lifetime exclusion. Another $3,000 would be the annual exclusion. That leaves $37,000 that would be subject to gift tax. What would have been the gift tax rate back then, any idea? If NO gift tax was paid, then that means that 37/70 = 53% of the property was subject to tax, but not paid. The gift was given before the unified code, but if the donor died in 2001, after the estate and gift taxes were unified, wouldn't that bring the gift back into the estate calculations? Since the 2001 value of the property was $1 million, does that mean that 53% of the $1 million would be counted against the donor's $675,000 unified credit? $675,000 - 530,000 = $140,000. Does that mean that $140,000 is left to offset the other $3 million left by the man's will at his death? Is this how the unpaid gift tax would be calculated, after the fact? If not, can you explain how it would be calculated for 2001?

Customer: replied 6 years ago.
I hope you are still out there in cyberspace. Since you have not responded, I do not know if you are here or not. Should I try another expert?