sethb[at]panix.com (Seth Breidbart) wrote:
- quote -

So no mansion on it? Consistent with my prior answers I
would say $100,000. But since I can't find anything on
point I am not sure.

I believe BNA has an entire portfolio devoted to 2035 et al.
Since I don't subscribe to their estate and gift portfolios
I don't have it. While your question is interesting I am not
motivated enough to buy the portfolio just to find the
answer.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:
- quote -

The empty lot is still worth about $100,000.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

- quote -

Comparing the two versions indicates that the references to
the other statutes was quite deliberate and not a ham-handed
way of attempting to be inclusive as I originally thought.
Based on that I have to agree that your interpretation is
correct.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

sethb[at]panix.com (Seth Breidbart) wrote:
- quote -

I have never encountered such a situation. Nor can I find
something directly addressing your question. So I will
apply the Code and Regulations to your question as best I
can. I strongly urge you, even more so than usual, to hire
someone to research this for you.

Certainly the release was within three years of death so
2035(a)(1) is satisfied. 2035(a)(2) requires inclusion if
the transfer would be required to be included if the
retained life estate was held at death. So if Mom still
retained her life estate, even after Johnny sold the house,
then $2,000,000 would be included. So 2035 would still
require that $2,000,000 be included.

- quote -

This question is similar to the above except you have added
more property to the question. An appraiser would have to
determine the value of the part on Mom's property.

- quote -

What is it worth?

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:
- quote -

I apologize. The Section was amended in 1976 but the change
I was referring to was made in 1981, effective 1-1-82.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Yes, why wouldn't the Code be the ultimate authority?

- quote -

This was a case for tax year 1976. Note that it referred to
Section 2035. Code Section 2035 has been amended many times
since then. From the case you cited: "Section 2035 , as it
applied to gifts made before 1977, provided that gifts made
within three years of the donor's death would be deemed to
have been made in contemplation of death, unless the estate
could establish otherwise."

The change from all gifts in anticipation of death to only
certain transfers was made in the Tax Reform Act of 1976,
P.L. 94-55, effective 1-1-77.

Please provide a cite to a case for a gift after 12-31-76
that supports your contention that all gifts within three
years of death are includible in the estate.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

On January 15, 2010 Johnny sells the house for $500,000.

The real estate market turns red hot, and on February 18,
2011 the house is worth $2 million.

How much is included in her estate?

Alternatively, the house gets torn down, and on its site
(and three adjacent lots) an office building worth $50
million is built. Now how much is included?

Alternatively, on January 15, 2010 a tornado wipes out the
house; Johnny gets $400,000 insurance and sells the lot for
$100,000. By the time Mom dies, nothing has been built (or
a mansion has been built) there. Now, what is included?

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:
- quote -

The ultimate authority being the statute?

If the Supreme Court is what you want, take a look at United
States v. Hemme, 476 U.S. 558 (1986). See in particular page
563, which includes the following language:

"Just over two years later, Hirschi died, and his estate was
required by law to include in the gross estate all gifts made
'in contemplation of death,' which presumptively included all
gifts made within three years of the decedent's demise."

The case involved cash gifts, so sections 2036, 2037, 2038
and 2042 have nothing to do with it.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

I don't see the statute as vague at all nor are the
references to 2036, 2037, 2038 and 2042 meaningless. Please
read all the Code Sections.

I will provide an example of how the section operates. Mom
transfers title on her home to little Johnny (Age 50) on
June 3, 2006. On the deed is recorded Mom's right to live
in the home until her death. So Mom has a retained life
estate under 2036.

On January 8, 2009 she goes into a nursing home. On August
7, 2009 Mom decides she will never return to the house and
has the retained life estate removed from the deed. On
February 18, 2011 Mom dies.

Mom died less than three years after releasing her retained
life estate. So the relinquishment of her retained life
estate meets the criteria of 2035(a)(1). If she had held
the retained life estate at her death then the house would
have been included in her estate. Ergo the conditions of
2035(a)(2) are met. The house is still included in her
estate.

- quote -

I cited the ultimate authority, short of a Supreme Court
ruling. Since you say you have cases that support your
interpretation, then please provide them.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

The statute is vague. The operative language is "if such
transferred interest ... had been retained by the
decedent...." Those other statutes deal with transfers.
But if the decedent had retained an interest the transfer
would not have taken place. So really the reference to
those other statutes is meaningless.

- quote -

Do you have any authority for your position? There are no
regulations that I could find. And every court case I have
looked at talkes about the three-year provision as being
generally without the restrictions to which you refer.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ddl[at]danlan.*com (Dan Lanciani) wrote:
- quote -

The three year rule only applies in limited situations. See
Section 2035 which says in part:

(a) Inclusion Of Certain Property In Gross Estate.--
If--
(1) the decedent made a transfer (by trust or otherwise) of
an interest in any property, or relinquished a power with
respect to any property, during the 3-year period ending on
the date of the decedent's death, and
(2) the value of such property (or an interest therein)
would have been included in the decedent's gross estate
under section 2036, 2037, 2038, or 2042 if such transferred
interest or relinquished power had been retained by the
decedent on the date of his death,

the value of the gross estate shall include the value of any
property (or interest therein) which would have been so
included.
----- end quoted text

2036 refers to transfers with retained life estates (the
original topic of this thread). 2037 refers to transfers
taking effect at death. 2038 refers to revocable transfers.
2042 refers to life insurance. In addition gift tax paid
within 3 years of death is also added back to the estate -
2035(b).

2035(c) also includes:

(c) Other Rules Relating To Transfers Within 3 Years Of Death.--

(1) In General.--
For purposes of--
(A) section 303(b) (relating to distributions in redemption
of stock to pay death taxes),

(B) section 2032A (relating to special valuation of certain
farms, etc., real property), and
(C) subchapter C of chapter 64 (relating to lien for
taxes),

the value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or
otherwise, during the 3-year period ending on the date of
the decedent's death.
----- end quoted text

So as you can see the three year rule is quite limited in
application.

- quote -

If you are still talking about joint property with a
non-spouse then the recipient who paid for the improvements
will be treated as owner of those improvements. The
appraiser will have to take this into account when they do
the appraisal.

If the property was sold prior to death and each joint
tenant gets his or her share at sale then there are
typically no further consequences at death. Why? Because
the decedent no longer holds any power over the gifted
property, assuming Section 2035 doesn't apply.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ddl[at]danlan.*com (Dan Lanciani) wrote:
- quote -

The gift tax credit is not refundable.

- quote -

Yes, the situation you describe is possible. You get the
entire credit based on the gift tax paid. But again it is
not refundable. So it is possible to pay gift tax at the
time of adding a non-spouse joint owner and then fail to
receive full, or any, benefit at death. I do not see this as
unfair because the sequence of events is controlled by the
taxpayer. The taxpayer decided to add the joint owner as a
gift, not the government.

This is one reason joint ownership with someone other than
your spouse of real estate and some other assets is not
always a good probate avoidance technique. The taxpayer can
easily avoid this problem with a living trust.

snip

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

spamtrap[at]lexregia.com (Stuart A. Bronstein) writes:

- quote -

Is there any allowance for improvements made by the donee
between time of gift and time of death? What happens if the
(whatever) has been sold to a third party by the time of
death?

Dan Lanciani
ddl[at]danlan.*com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ddl[at]danlan.*com (Dan Lanciani) wrote:

- quote -

Fixed at the time of the gift.

Note that gifts made within three years of the date of death
are brought back into the estate for estate tax purposes, at
full market value at that time.

- quote -

Well, if the creation of the joint tenancy predated the
"consideration" I doubt the IRS would get very far. The
joint tenancy was not created "for" or in exchange for the
consideration, so it shouldn't qualify as consideration
under the statute.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

spamtrap[at]lexregia.com (Stuart A. Bronstein) writes:
- quote -

I was actually talking about two different things above. In
the first case I was considering a net credit for the whole
estate. (I doubt you get it back.)

In the second case I was thinking about a per-asset
limitation if the value had changed. But the more I think
about this the more I believe it can't happen. The value
must be fixed at the time of the gift tax return, right?
(Ignoring fraud) Otherwise you could have absurd situations
when a gifted property has changed hands many times (and/or
been developed) between the gift and the death of the giver.
It's current value might not even be readily available.

- quote -

Just to be clear here, what you are calling "work" is what I
would call "fail." That is, I'm interested in what can
go wrong if you intend to use joint tenancy merely to pass
the property without probate while still enjoying full basis
step up. It would thus be the government arguing that there
had been some kind of purchase for consideration. How
likely are they to succeed (or even try)?

Dan Lanciani
ddl[at]danlan.*com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ddl[at]danlan.*com (Dan Lanciani) wrote:
- quote -

I haven't had this come up so I don't specifically know. My
guess is that you don't get anything back, but you just get
a (non-refundable) credit.

- quote -

That's normally the way it works with lots of different
taxes. You can get a credit, but if you don't use it all up
you lose it and don't get back the difference.

- quote -

The laws and regulations aren't clear whether valuation is
based on equal proportions or actuarial value. If a
transfer is considered to be for less than fair market
value, only the portion actually paid for at market value
will be considered owned by the guyer.

- quote -

Probably not. If it were done so that the change of title
were in exchange for the promise to care for the parent, it
could then likely work, though value of the promise to care
would have to be determined.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

spamtrap[at]sbcglobal.net (Stuart A. Bronstein) writes:
- quote -

If you previously paid gift tax because you exceeded the
lifetime gift number but your estate (with add back) is
under the estate tax number do you get a refund of the
credit? (The "unified" gift and estate tax magic number
for gifts is still just $1M, right?)

- quote -

I was thinking that you might have a credit with respect
to a past gift that exceeds the tax that would be due on
its reduced value in the estate. (Or is the value that
is included in the estate the value that was used at the
time of the taxable gift?) This seems like the kind of
thing that often provokes special rules that insure that
you lose both ways, e.g., limiting the credit to the
lesser of the past tax paid and the present tax that
would be due.

- quote -

How is the portion owned by the child determined? Is it
the portion of the property at fair market value that could
be bought by the fair market value of the care? Or can a
below-market transfer (with the difference as gift) be
inferred to pessimize the tax result? If the title is
initially changed merely for purposes of passing on death
and the child subsequently cares for the parent does the
gift retroactively become a "purchase" for consideration?

Dan Lanciani
ddl[at]danlan.*com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ddl[at]danlan.*com (Dan Lanciani) wrote:
- quote -

In a manner of speaking. On death the gift tax and estate
tax are in effect melded into one, taxing the current estate
and all past taxable gifts, with credit for gift taxes
already paid.

- quote -

If joint tenancy property is all considered to belong to the
decedent for estate tax purposes, the answer is yes.

- quote -

Issues? I don't understand what you're getting at. The tax
effects don't change.

- quote -

This is particularly an issue in community property states.

With respect to husbands and wives, joint tenancy property
is considered owned half by each. So when one dies only
half gets the stepped up basis.

On the other hand if the property were left as community
property (which can be done by using a trust), the entire
value of the property, not just half, gets the stepped up
basis.

For children the same kind of thing can happen. If a parent
puts property in joint tenancy with a child for purpose of
passing title on death, and in exchange the child takes care
of the parent, that could be thought to be consideration in
exchange for the ownership interest in the property. To the
extent the joint tenancy is in exchange for consideration,
the "purchaser" becomes an owner for tax purposes. And the
portion "owned" by the child does not get a stepped up basis
when the parent dies.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

dl[at]danlan.*com (Dan Lanciani) wrote:
- quote -

There is no credit as there was no gift tax paid. The
"lifetime exclusion" is, in effect, restored for the amount
used on that gift tax return. The property is stepped up to
the full fair market value at date of death or the
alternative date, if elected.

To the professionals, I realize these aren't the same terms
we typically use. I am just trying to get at the gist of
the matter.

---
Drew Edmundson, CPA
Cary, NC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

drewsbeagles[at]hotmail.com (Drew Edmundson) writes:

- quote -

If no gift tax was paid but only a portion of the lifetime
exclusion consumed does the estate get "credit" for that
as well? Does the entire property enjoy the basis step up?
Are there any issues if the value of the property changed
significantly between title change and death (in particular
if it went down)?

I'm trying to understand why popular wisdon says that
passing title by joint tenancy is bad for tax purposes. I
understand the non-tax issues...

Dan Lanciani
ddl[at]danlan.*com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >