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Assume the same facts as in Problem C:12-21 and that Marcy has decided to give Phil property valued at $5.44 million. Phil probably will leave the gifted property to their children under his will.
A.) What are the gift tax consequences to Marcy and the estate tax consequences to Phil of the transfer (assuming the property does not appreciate before his death)?
B.) Assume Marcy is trying to decide whether to give Phil stock with an adjusted basis of $1,285,000 or land with and adjusted basis of $2.8 million. Each asset is valued at $5.44 million. Which asset would you recommend she give and why?
Problem C:12-21
Phil and Marcy have been married for a number of years. Marcy is very wealthy, but Phil is not. In fact, Phil, who has only $10,000 of property, is very ill and his doctor believes that he probably will die within the next few months.
Expert Answer
ANSWER:
Part-1)
1) In this scenario the taxable gift of Marcy’s is zero because the exclusion of $10,000 and marital deduction for the amount $605,000. Phil’s taxable estate will be 615,000 from Marcy plus $10,000 of his own property, thus the total amount of $625,000, however due to the united credit his estate tax liability is zero
2) Marcy should give Phil the stock. In case he does not will the gifted property to her then the property’s basis will be stepped up to its date of death value. Due to the higher appreciation inherent in the stock in comparison to the land, more value appreciation can be moved from the income tax rolls by allowing the stock pass through Phil’s estate to the children
PART-2) Answer: Marcy is advised to give Phil nearly assets for the amount $615,000. By this ay she would not make a taxable gift because of the annual exclusion amount and marital deduction. In case the Phil wills his assets to someone other than Marcy, then can avail the full advantage of his united credit, the most of which otherwise would have been wasted. Thus the property for the amount $615,000 of property have to be shifted to the transfer tax rolls. Moreover the basis of the assets will be stepped up to the amount of their value as of Phil’s date of death, assuming that he does not will them back to Marcy
