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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My father transferred $170,000 into a trust in 2010 so that

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My father transferred $170,000 into a trust in 2010 so that he could qualify for a VA benefit. The trust includes $70,000 in a savings account plus 2 13yr $50,000 fixed annuities. My dad died in February 2011, and I am told that I must submit a (very confusing!!) Form 709.
Our plan is to split the savings account between myself and my sister (the only defined beneficiaries), and to transfer 1 each of the $50k annuities to my sister and me, but to leave the annuities in place.
I cannot figure out how to complete the 709, i.e., does the $170,000 gift go to Part 1, 2 or 3 of Schedule A, and where does the $1 million life time exclusion get recorded so that there is no tax liability.
Submitted: 6 years ago.
Category: Tax
Expert:  Stephen G. replied 6 years ago.
Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

What kind of a trust did your father transfer the 170,000. to in 2010?
Customer: replied 6 years ago.

I'm assuming that you are asking if it is revocable or irrevocable ?? It is irrevocable.

The trust document was written by an attorney, set-up at a local bank.

Expert:  Stephen G. replied 6 years ago.

Did he retain any interest in the trust assets, for example the income from the trust while he was alive?

The reason I'm asking is that if he retained any interest in the trust, it would affect the amount of the gift; also, at what point were you & your sister able to make withdrawals, affects how you would have to complete the 709 as we need to determine if the annual gift tax exclusion applies.
Customer: replied 6 years ago.

He did not retain any interest in the trust assets. Any interest that may accrue in the trust checking remains in the trust account. The annuities have no payouts until maturity or they are cancelled.

The checking account balance (about $70,000) will be distributed equally to the 2 beneficiaries, my self and my sister. The 2 annuities are remaining active, but are being transferred into the names of the same 2 beneficiaries via a "Policyowner's Change Request" supplied by the annuity insurance company.

Expert:  Stephen G. replied 6 years ago.

So do I understand correctly that you & your sister could have withdrawn the assets in the trust when the trust was established, or did the trust provide that the trust would remain intact until your father passed away?
Customer: replied 6 years ago.
The intent of the trust was for the Trustee to determine distribution of the trust funds upon my Dad's death. The Trust explicity lists the beneficiaries as me and my sister.
Expert:  Stephen G. replied 6 years ago.
The gift that your father made to the irrevocable trust should be listed on form 709, Schedule A, Part 1.

Since the gift to yourself and your sister was not a gift of a present interest it doesn't qualify for the annual $13,000. gift tax exclusion.

You'll need the instructions to the 709 in order to complete the return and figure the gift tax.

The page 1 figure of the 330,000 + - is the tax credit equivalent of the $1,000,000. amount of lifetime gifts that isn't taxed.

In this format, I can answer questions for you, but I can't actually prepare the return for you; however, it isn't too difficult except the terms can get confusing; most of it won't apply to you. Parts 2 & 3 aren't applicable, so they can just be left blank. The generation-skipping sections don't apply either.

Please remember to "Accept", it is the only way we get credit for our work. Feedback, if you have time, and bonuses, where you think they are warranted, are always most appreciated.

I'll be happy to answer any follow-up questions you may have.

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