to yield its “adjusted basis.” Adjusted basis is important as the income tax resulting from the sale of property will generally depend on its gain on sale = amount realized – adjusted basis. See AMOUNT REALIZED; BASIS; GAIN.
The current $345,800 applicable credit amount allows assets valued at up to $1,000,000 to pass estate or gift tax free.
The applicable credit amount is the new name for what used to be called the “unified credit,” adopted upon the unification of the estate and gift tax by the Tax Reform Act of 1976. The Economic Growth and Tax Relief Reconciliation Act of 2001, however, changed the estate and gift tax laws, among many other ways, by “freezing” the unified credit for gift tax purposes at its amount applicable for 2002 and 2003, namely, $345,800, while allowing the unified credit for estate tax purposes to continue to increase in time. As a result, the unified credit beginning in 2004 will no longer be “unified,” and the IRS changed the name from the “unified credit” to the “applicable credit amount.”
Some states, eg, Washington, do not require that the “witnesses” or, more correctly, the “attestors,” witness the testator‘s actual signing — only that they state that they have personal knowledge that the testator was the person who signed the will.
Basis of property depends upon how it is obtained:
In some states (eg, California), such a person is called:
In other states, such a person is called:
In order to qualify for the gift tax annual exclusion amount, a gift has to be of a present interest, so assets transferred to a trust for the benefit of another usually fail to qualify for the gift tax annual exclusion amount and are taxable. In order to qualify an asset transferred to a trust for another’s benefit for the gift tax annual exclusion amount, what Mr. Crummy (the taxpayer whose case established the use of trusts that now bear his name) did was to provide that his beneficiary have the power to withdraw, for only a short period of time after its making, any asset that he transferred to the trust for the beneficiary‘s benefit. The beneficiary must then elect:
In addition, any payment of any amount on behalf of any donee for school tuition or medical expenses is completely exempt from gift tax as long as the payment is made directly to the school, doctor, hospital, medical facility, etc. and not to the donee.
Lastly, if a donor desires to take advantage of the gift tax annual exclusion amount but is reluctant to make an outright gift to a donee, then other alternates are available, such as a gift to a crummey trust (named for the taxpayer whose tax case validated its use). See CRUMMEY TRUST.
A Decedent’s gross estate is inventoried in the relevant schedules of his/her federal estate tax return (Form 706) as follows:
Total Gross Estate = Sum of the Above
In some states, eg, California, a guardian is the title of the person appointed only for a minor, in which case the person appointed to care for a disabled person who has attained the age of majority is known as a conservator. Also, in some states, eg, California, a guardian or conservator may be appointed who has only limited duties that the court specifically finds are needed for the care of the ward (eg, housing or health care or management of a specific asset), in which case the appointee is known as a limited guardian or conservator.
The use of specific words that may or may not define an ascertainable standard has resulted in much litigation. For example, the inclusion of one word, “comfort,” in a trust cost one estate over $700,000 in unnecessary estate tax. Estate of Norman H. Vissering, 96 T.C. 749 (1991). The trust could even have said “comfortable” (as in “comfortable support” — just not “comfort” alone) and that would have been OK.
Regarding one’s tangible personal property, many states have statutes providing for the disposition at death of some types or all of an individual’s tangible personal property (generally not including property used in a trade or business) by a writing, specifying the item and its intended beneficiary and signed and dated by its maker, that does not have to be executed with the formality required of a will. In some states (eg, Washington, see RCW 11.12.260), these informal writings are binding as regards the disposition of the specified property so long as it is not specifically given in one’s will and the will refers to the writing. In other states, these writings are discretionary with one’s personal representative.
Compare: PROBATE ESTATE.
The Prudent Person Rule emphasizes caution, conservation, but most of all preservation of capital.
The surviving spouse’s right to income for life can be either legal or equitable. An example of a legal right to income for life would be a right of the surviving spouse to live in the family home rent free for the rest of his/her life. An example of an equitable right to income for life would be the right to all income from a trust whose assets consisted of publicly traded securities.
Separate property is considered to be owned exclusively by its owner upon the marriage or by its donee following the marriage. The separate character of separate property is lost if separate property is commingled with community property (ie, separate property added to community property becomes community property itself). Contrast: COMMUNITY PROPERTY.
Contrast: INTANGIBLE PROPERTY.
Contrast: JOINT TENANCY.
See RCW 11.12.020 for the witnessing requirements for wills in Washington.