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I've prepared gift tax returns for my mom's trust for three…

I've prepared gift tax...

I've prepared gift tax returns for my mom's trust for three years. I've shown 100% of all funds put into the trust in the year funded. All gifts have been in cash and are immediately available for distribution by the beneficiaries (me and my sister), thus present interests, even if we choose to NOT receive any current distribution.

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

It dawned on me that I probably did it wrong. *WHEN* is a gift tax return needed for a grantor trust? WHEN the funds are gifted to the trust, or only when the funds are distributed to the beneficiaries? Again, we are talking present interest since both beneficiaries have the right to receive distributions anytime.

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Answered in 9 minutes by:
2/16/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,612
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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You're right. If this is a GRANTOR trust, then the trust is not a separate taxable entity.

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So your mother sill has the ability to revoke the gift, it's not a completed gift

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A gift is considered a present interest if the donee has all immediate rights to the use, possession, and enjoyment of the property or income from the property.

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A gift of a future interest cannot be excluded under the annual exclusion

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Now, if this is an IRREVOCABLE trust, and not a grantor trust, then this is a completed gift.

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Grantor trusts become irrevocable at the death of the grantor (no longer able to revoke).

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But the gift tax form no longer applies there. the trust is just being used (making distributions) according to the terms of the trust.

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Customer reply replied 1 year ago
Just to make things more complicated, it is an irrevocable trust treated as grantor trust for tax purposes (confirmed by legal and CPA). So...when should the gift tax returns be filed? Upon funding of the trust, or when distributions in excess of $14,000/year per beneficiary are done?

Ahhhh an intentionally defective grantor trust - IDGT

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You did it right.

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For estate purposes (transfer tax - gift/tax) the gift was made at the time the money was transferred to the trust.

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It's only for INCOME tax purposes that she is considered to own the income

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Customer reply replied 1 year ago
PERFECT - that is very helpful.Last part of the question...since it's a gift when funded into the IDGT, with present interests, can the $14,000/year per beneficiary be deducted for Gift tax purposes?

Sorry, just broke out of a meeting.

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The 14,000 is the amount tnat's completely excluded (annual exclusion), so if less that that were gifted (per donor per donee) then it's completely out of the sytem (not reported not taxed)

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If MORE than that is gifted, as you saw on the form 709, (part 4, taxable gift reconciliation) the 14,000 is taken out of the amount that reduces the lifetime exemption.

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(If you don’t have other questions), I would appreciate a positive rating - using those stars on your screen – and clicking submit.

That’s the only way JustAnswer will compensate me for the work here.

Thanks,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,612
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 1 year ago
Perfect, thank you so much!!!!

You're very welcome. Thanks for the rating.

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