2012 Federal Gift Tax Returns
By: Morris Law Group - March 12, 2013
If you made gifts during the year of 2012 you may be required to file a Federal gift tax return (IRS Form 709) for the year of 2012. The requirement that you file a gift tax return does not necessarily mean that you must pay gift tax. If a gift was made during 2012, or a gift to a generation-skipping trust during 2010, it is critical that you read the remaining portion of this memorandum, as it discusses the filing requirements.
Outright Gifts of Cash or Property (Not in Trust)
If an individual gifts cash or property (in excess of $13,000 for 2012) to an individual other than his or her spouse, such individual is required to file a gift tax return. The donor's lifetime estate and gift tax exemption is reduced by the value of the gift which exceeds the $13,000 annual exclusion (note that the gift tax exemption for the year 2011 was $5,000,000, for the year of 2012 was $5,120,000 and for the year of 2013 is $5,250,000). If the donor has already used his or her total gift tax exemption during life, the gift would be subject to gift tax. Otherwise, no gift tax would be due with the return.
Gifts of Cash or Property in Trust
When an individual gifts cash or property to a trust, including the gift of a life insurance policy, he or she is making a gift to the trust's beneficiaries. If the gift to the trust's beneficiaries does not exceed $13,000 per beneficiary and notices of rights of withdrawal (Crummey notices) are properly used, a gift tax return may not be required, unless the trust is structured as a generation-skipping transfer ("GST") tax trust. You should note that it is fairly typical to structure an insurance trust as a GST trust. If a gift is made to a GST trust, it is advisable in most instances to allocate the donor's GST exemption to the trust. While this allocation is automatic, it is advisable to either opt out of the automatic allocation rules for record keeping purposes, or, file a return showing the allocation of the GST Exemption. If a gift to a trust exceeds $13,000 per beneficiary, a gift tax return is required to be filed. The requirement to file a gift tax return applies to Qualified Personal Residence Trusts ("QPRTs"), Grantor Retained Annuity Trusts ("GRATs"), Charitable Remainder Trusts ("CRTs"), Charitable Lead Trusts ("CLTs"), and many other types of trusts.
The Federal Government repealed the GST tax for 2010 and therefore, no return is necessary. However, if gifts were made to GST trusts, it is advisable to make an allocation of a portion of your remaining GST exemption to the trust for tax minimization purposes. Please contact our office or your tax return preparer for rules and requirements.
Gifts Between Spouses
If a gift is made from one spouse to the other spouse, who is a United States citizen, a gift tax return is not required, unless the gift is made to a trust (sometimes referred to as an inter vivos QTIP trust) for the spouse's benefit. In addition, there are special rules that apply when a gift is made to a spouse who is not a United States citizen. Please contact our office or your tax return preparer for rules and requirements that apply when a gift is made to a spouse who is not a United States citizen.
Due Date of 2012 Gift Tax Return
Your 2012 gift tax return is due on April 15, 2013, the same due date as your 2012 individual income tax return. This due date can be extended by extending the time to file your individual income tax return using Form 4868 or Form 2350. This due date can also be extended by filing a Form 8892 to request an automatic 6-month extension if you do not request an extension for your individual income tax return. Note that neither of these methods will extend the time to pay gift or GST taxes due.
Gift Tax Return Preparer
Most accountants are able to prepare gift tax returns. However, many accountants prefer not to prepare them because of the complex rules that apply to the allocation of the GST exemption and the special disclosures that must be made with certain types of gifts. Because of the complexities involved with gift tax returns, if your accountant prepares the return, we suggest that the return be forwarded to us for our review. Of course, should you want us to prepare the gift tax return, we are happy to assist.
Please be aware that the Treasury Department has issued final regulations which address the gift tax statute of limitations. These regulations must be considered very carefully. They implement the provisions of the Taxpayer Relief Act of 1997 and the IRS Restructuring Act of 1998, which require adequate disclosure of gifts in order to commence the gift tax statute of limitations and to provide finality for purposes of determining adjusted taxable gifts made in prior years. This is particularly important when interests in one or more business entities have been gifted.
Please call us if you have any questions regarding the contents of this memorandum or if we can be of any assistance in reviewing or preparing your 2012 Federal gift tax return.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.