Gift Tax

<div class="Section1">Any transfer of property to a minor under either of the Uniform Acts constitutes a complete gift for federal gift tax purposes to the extent of the full fair market value of the property transferred. Generally, such a gift qualifies for the gift tax annual exclusion (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="905">905</a>).<a href="#_ftn1" name="_ftnref1">¹</a> The allowance of the exclusion is not affected by the amendment of a state&rsquo;s Uniform Act lowering the age of majority and thus requiring that property be distributed to the donee at age 18.<a href="#_ftn2" name="_ftnref2">²</a><div class="Section1"><br /> These rulings base the allowance of the exclusion on the assumption that gifts under the Uniform Acts come within the purview of IRC Section&nbsp;2503(c). Gifts to minors under IRC Section&nbsp;2503(c) must pass to the donee on his attaining age 21. If a state statute varies from the Uniform Act by providing that under certain conditions custodianship may be extended past the donee&rsquo;s age 21, gifts made under those conditions would not qualify for the exclusion. For tables of state laws concerning the Uniform Acts, see Appendix D.</div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; Rev. Rul. 56-86, 1956-1 CB 449; Rev. Rul. 59-357, 1959-2 CB 212.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; Rev. Rul. 73-287, 1973-2 CB 321.<br /> <br /> </div></div><br />

<div class="Section1">For gift tax and generation-skipping transfer (GST) tax purposes, a contribution to a qualified tuition program on behalf of a designated beneficiary is not treated as a qualified transfer for purposes of the gift tax and GST tax exclusion for educational expenses, but is treated as a completed gift of a present interest to the beneficiary which qualifies for the annual exclusion (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="905">905</a>). If a donor makes contributions to a qualified tuition program in excess of the gift tax annual exclusion, the donor may elect to take the donation into account ratably over a five-year period.<a href="#_ftn1" name="_ftnref1">¹</a> Distributions from a qualified tuition program are not treated as taxable gifts. Also, if the designated beneficiary of a qualified tuition program is changed, or if funds in a qualified tuition program are rolled over to the account of a new beneficiary, such a transfer is subject to the gift tax or generation-skipping transfer tax only if the new beneficiary is a generation below the old beneficiary.<a href="#_ftn2" name="_ftnref2">²</a><div class="Section1"><br /> <br /> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="844">844</a> for the estate tax treatment and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="687">687</a> for the income tax treatment of qualified tuition programs.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 529(c)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 529(d)(5)(B).<br /> <br /> </div></div><br />

<div class="Section1">It has been held that the gift of a portion of the donor’s interest in real property, if under the terms of the transfer the donee receives the present unrestricted right to the immediate use, possession, and enjoyment of an ascertainable interest in the property, qualifies for the gift tax annual exclusion.</div><br /> <div class="Section1"><br /> <br /> If a donor transfers a specified portion of real property subject to an “adjustment clause” (i.e., under terms that provide that if the IRS subsequently determines that the value of the specified portion exceeds the amount of the annual exclusion, the portion of property given will be reduced accordingly, or the donee will compensate the donor for the excess), the IRS has ruled the adjustment clause will be disregarded for federal tax purposes.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> A donor’s gratuitous payment of the monthly amount due on the mortgage on a house owned in joint tenancy by others has been held a present interest gift to the joint tenants in proportion to their ownership interests.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    Rev. Rul. 86-41, 1986-1 CB 300.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.    Rev. Rul. 82-98, 1982-1 CB 141.<br /> <br /> </div>

<div class="Section1"><br /> <br /> A “qualified transfer” is not considered a gift for gift tax purposes. A “qualified transfer” means any amount paid on behalf of an individual–<br /> <p style="padding-left: 40px;">(A)    as tuition to an educational organization<a href="#_ftn1" name="_ftnref1">¹</a> for the education or training of such individual, or</p><br /> <p style="padding-left: 40px;">(B)     to any person who provides medical care<a href="#_ftn2" name="_ftnref2">²</a> with respect to such individual as payment for such medical care.<a href="#_ftn3" name="_ftnref3">³</a> A technical advice memorandum treated tuition payments for future years as qualified transfers where the payments were nonrefundable.<a href="#_ftn4" name="_ftnref4">⁴</a></p><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    IRC § 170(b)(1)(A)(ii).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.    As defined in IRC § 213(d).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.    IRC § 2503(e); Rev. Rul. 82-98, 1982-1 CB 141.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.    Let. Rul. 200602002; TAM 199941013.<br /> <br /> </div>

<div class="Section1">Contributions to an education savings account are treated as completed gifts to the beneficiary of a present interest in property which can qualify for the gift tax and generation-skipping transfer (GST) tax annual exclusion. The contributions must be in cash and prior to the beneficiary&rsquo;s 18th birthday. If the contribution is made for a beneficiary designated with special needs, the age limit does not apply.<a href="#_ftn1" name="_ftnref1">¹</a> If contributions for a year exceed the gift tax annual exclusion, the donor can elect to prorate the gifts over a five-year period beginning with such year. A contribution to an education savings account does not qualify for the gift tax or GST tax exclusion for qualified transfers for educational purposes.<a href="#_ftn2" name="_ftnref2">²</a> Distributions from an education savings account are not treated as taxable gifts. Also, if the designated beneficiary of the education savings account is changed, or if funds in the education savings account are rolled over to a new beneficiary, such a transfer is subject to the gift tax or GST tax only if the new beneficiary is a generation below the old beneficiary. Transfers within the same generation do not trigger a gift tax liability.<a href="#_ftn3" name="_ftnref3">³</a><div class="Section1"><br /> <br /> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="843">843</a> for the estate tax treatment and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="681">681</a> for the income tax treatment of education savings accounts.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;530(b)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 530(d)(3), 529(c)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 530(d)(3), 529(c)(5).<br /> <br /> </div></div><br />

<div class="Section1">It is a dollar amount ($5,389,800 in 2024, $5,113,800 in 2023, $4,769,800 in 2022, $4,625,800 in 2021, $4,577,800 in 2020, $4,505,800 in 2019, and $4,419,800 in 2018)<a href="#_ftn1" name="_ftnref1">¹</a> that is credited against the gift tax computed as shown in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="892">892</a>.<a href="#_ftn2" name="_ftnref2">²</a> In 2010, the credit exempted $1,000,000 of taxable gifts from the gift tax (the dollar amount exempted is referred to as the &ldquo;gift tax applicable exclusion amount&rdquo;). For 2011, the amount increased to $5,000,000, and was adjusted for inflation to $5,490,000 in 2017, and the 2017 Tax Act doubled the amount to $11,800,000 in 2018, $11,400,000 in 2019, $11,580,000 in 2020, $11,700,000 in 2021, $12,060,000 in 2022, $12,920,000 in 2023 and $13,610,000 in 2024).<a href="#_ftn3" name="_ftnref3">³</a> Any gifts made over the gift tax applicable exclusion amount are taxed at a 40 percent rate (in 2013 and thereafter). (For application of the unified credit to the federal estate tax, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="861">861</a>.) The credit is referred to as &ldquo;unified&rdquo; because the current credit applies to the gift tax (section 2505), the GST tax (section 2641) or the estate tax (section 2010).<div class="Section1"><br /> <br /> The amount of unified credit allowed against the tax on gifts made in any calendar year cannot exceed the dollar amount of credit applicable to the period in which the gifts were made, reduced by the sum of the amounts of unified credit allowed the donor against gifts made in all prior calendar periods, and reduced further by the rule explained in the next paragraph (but in no event can the allowable credit exceed the amount of the tax). The unused exemption of a deceased spouse may be transferred to the surviving spouse to increase the gift or estate applicable exclusion amount for the surviving spouse.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The unified credit was enacted by the Tax Reform Act of 1976. Under prior law, separate exemptions were provided for estate and gift taxes. The gift tax specific exemption was $30,000 for each donor (or $60,000 if the donor&rsquo;s spouse joined in making the gift). The exemption was not applied automatically, as in the case of the unified credit, but had to be elected by the donor, and once used was gone. The law provides that as to gifts made after September&nbsp;8, 1976, and before January&nbsp;1, 1977, if the donor elected to apply any of his lifetime exemption to such gifts, his unified credit is reduced by an amount equal to 20 percent of the amount allowed as a specific exemption.<a href="#_ftn5" name="_ftnref5">⁵</a> (The unified credit is not reduced by any amount allowed as a specific exemption for gifts made prior to September&nbsp;9, 1976.)<br /> <br /> Under 2010 TRA, a donor can make gifts, without incurring a gift tax liability, up to the difference between the current year&rsquo;s applicable exclusion amount and the prior taxable gifts.<br /> <br /> By means of the &ldquo;split gift&rdquo; provision (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="904">904</a>), a married couple can effectively use each other&rsquo;s unified credit.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; Rev. Proc. 2016-55, Rev. Proc. 2017-58, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2505, as amended by EGTRRA 2001.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp; Rev. Proc. 2016-55, Pub. Law. No.&nbsp;115-97 (the 2017 Tax Act), Rev. Proc. 2018-18, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 2505(a)(i); 2010.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2505(c).<br /> <br /> </div></div><br />

<div class="Section1">If the transferor&rsquo;s receipt of the noninterest-bearing notes is characterized as a &ldquo;term gift loan,&rdquo; the lender/transferor will be treated as having transferred on the date of the receipt, and the borrower/transferee will be treated as having received on such date, cash in an amount equal to the excess of the following: (1) the amount loaned; over (2) the present value of all payments required to be made under the terms of the loan (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="893">893</a>).<a href="#_ftn1" name="_ftnref1">¹</a> If the receipt of the notes is not so characterized, then the discussion in the following paragraph, relating to transactions occurring before June&nbsp;7, 1984, is pertinent.<div class="Section1"><br /> <br /> The IRS takes the position that such a transfer is a gift of the entire value of the property or interest given at the time of the transfer and is not a sale. If the transfer is of a remainder interest in property, it is a future interest gift that does not qualify for the gift tax annual exclusion (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="905">905</a>). The Service distinguishes between an intent to forgive the notes and donative intent (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="893">893</a>) with respect to transfer of the property: &ldquo;A finding of an intent to forgive the note relates to whether valuable consideration was received, and thus, to whether the transaction was in reality a bona fide sale or a disguised gift.&rdquo;<a href="#_ftn2" name="_ftnref2">²</a> The Tax Court, however, makes a distinction based on the nature of the notes given, holding that if the notes are secured by valid vendor&rsquo;s liens, the transaction is to be treated as a sale; a gift occurs on each date a note is due and forgiven, the value of the gift being the amount due on the note.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 7872(b)(1), 7872(d)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; Rev. Rul. 77-299, 1977-2 CB 343; <em>Deal</em>, 29 TC 730 (1958).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp; <em>Haygood v. Comm.</em>, 42 TC 936 (1964), nonacq. 1977-2 CB 2; <em>Est. of Kelley v. Comm.</em>, 63 TC 321 (1974), nonacq. 1977-2 CB 2.<br /> <br /> </div></div><br />

<div class="Section1">Not if he makes a <em>qualified disclaimer</em>. A “qualified disclaimer” is an irrevocable and unqualified refusal to accept an interest in property created in the person disclaiming by a taxable transfer made after 1976. With respect to inter vivos transfers, for the purpose of determining when a timely disclaimer is made (see condition (3) below), a taxable transfer occurs when there is a completed gift for federal gift tax purposes regardless of whether a gift tax is imposed on the completed gift. Thus, gifts qualifying for the gift tax annual exclusion are regarded as taxable transfers for this purpose.<a href="#_ftn1" name="_ftnref1">¹</a> Furthermore, a disclaimer of a remainder interest in a trust created prior to the enactment of the federal gift tax was subject to the gift tax where the disclaimer was not timely and the disclaimer occurred after enactment of the gift tax.<a href="#_ftn2" name="_ftnref2">²</a> In order to effectively disclaim property for transfer tax purposes, a disclaimer of property received from a decedent at death should generally be made within nine months of death rather than within nine months of the probate of the decedent’s will.<a href="#_ftn3" name="_ftnref3">³</a></div><br /> <div class="Section1"><br /> <br /> In general, the disclaimer must satisfy the following conditions: (1) the disclaimer must be irrevocable and unqualified; (2) the disclaimer must be in writing; (3) the writing must be delivered to the transferor of the interest, his legal representative, the holder of the legal title to the property, or the person in possession of the property, not later than nine months after the later of (a) the day on which the transfer creating the interest is made, or (b) the day on which the disclaimant reaches age 21; (4) the disclaimant must not have accepted the interest disclaimed or any of its benefits; and (5) the interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.<a href="#_ftn4" name="_ftnref4">⁴</a> Acts indicative of acceptance include: (1) using the property or the interest in property; (2) accepting dividends, interest, or rents from the property; and (3) directing others to act with respect to the property or interest in property. However, merely taking delivery of title without more does not constitute acceptance.<a href="#_ftn5" name="_ftnref5">⁵</a> A person cannot disclaim a remainder interest in property while retaining a life estate or income interest in the same property.<a href="#_ftn6" name="_ftnref6">⁶</a> Under 2010 TRA, a disclaimant has up to nine months after the enactment of 2010 TRA (12/17/10) to disclaim property passing from a decedent who died between January 1, 2010 and December 16, 2010.<br /> <br /> If a person makes a qualified disclaimer, for purposes of the federal estate, gift, and generation-skipping transfer tax provisions, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Accordingly, a person making a qualified disclaimer is not treated as making a gift. Similarly, the value of a decedent’s gross estate for purposes of the federal estate tax does not include the value of property with respect to which the decedent or his executor has made a qualified disclaimer.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> In the case of a joint tenancy with rights of survivorship or a tenancy by the entirety, the interest which the donee receives upon creation of the joint interest can be disclaimed within nine months of the creation of the interest and the survivorship interest received upon the death of the first joint tenant to die (deemed to be a one-half interest in the property) can be disclaimed within nine months of the death of the first joint tenant to die, <em>without regard to</em> the following: (1) whether either joint tenant can sever unilaterally under local law; (2) the portion of the property attributable to consideration furnished by the disclaimant; or (3) the portion of the property includable in the decedent’s gross estate under IRC Section 2040. However, in the case of a creation of a joint tenancy between spouses or tenancy by the entirety created after July 13, 1988 where the <em>donee spouse is not a U.S. citizen</em>, a surviving spouse can make a disclaimer within nine months of the death of the first spouse to die of any portion of the joint interest that is includable in the decedent’s estate under IRC Section 2040. Also, in the case of a transfer to a <em>joint bank, brokerage, or other investment account</em> (e.g., mutual fund account) where the transferor can unilaterally withdraw amounts contributed by the transferor, the surviving joint tenant may disclaim amounts contributed by the first joint tenant to die within nine months of the death of the first joint tenant to die.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> For purposes of a qualified disclaimer, the mere act of making a surviving spouse’s statutory election is not to be treated as an acceptance of an interest in the disclaimed property or any of its benefits. However, the disclaimer of a portion of the property subject to the statutory election must be made within nine months of the decedent spouse’s death, rather than within nine months of the surviving spouse’s statutory election.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> A power with respect to property is treated as an interest in such property.<a href="#_ftn10" name="_ftnref10">¹⁰</a> The<br /> exercise of a power of appointment to any extent by the donee of the power is an acceptance of its benefits.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> A beneficiary who is under 21 years of age has until nine months after his 21st birthday in which to make a qualified disclaimer of his interest in property. Any actions taken with regard to an interest in property by a beneficiary or a custodian prior to the beneficiary’s 21st birthday will not be an acceptance by the beneficiary of the interest.<a href="#_ftn12" name="_ftnref12">¹²</a> This rule holds true even as to custodianship gifts in states which provide that custodianship ends when the donee reaches an age below 21.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <br /> It is also important to check applicable state law to make certain that the disclaimer meets the requirements and is effective.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.      Treas. Reg. § 25.2518-2(c)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.      <em>U.S. v. Irvine</em>, 114 S. Ct. 1473, 94-1 USTC ¶ 60,163 (U.S. 1994).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.      <em>Est. of Fleming v. Comm.</em>, 974 F.2d 894, 92-2 USTC ¶ 60,113 (7th Cir. 1992).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.      IRC § 2518(b); Treas. Reg. § 25.2518-2(a).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.      Treas. Reg. § 25.2518-2(d)(1).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.      <em>Walshire v. Comm.</em>, 288 F.3d 342, 2002-1 USTC ¶ 60,439 (8th Cir. 2002).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.      Treas. Reg. § 25.2518-1(b).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.      Treas. Reg. § 25.2518-2(c)(4).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.      Rev. Rul. 90-45, 1990-1 CB 176.<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.    IRC § 2518(c)(2).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.    Treas. Reg. § 25.2518-2(d)(1); Let. Rul. 8142008.<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.    Treas. Reg. § 25.2518-2(d)(3).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>.  Treas. Reg. § 25.2518-2(d)(4), Example 11.<br /> <br /> </div>

<div class="Section1">There may be a gift for federal gift tax purposes either at the time title is taken in joint names or at a later time when one of the joint owners reduces some or all of the property to his own possession. Consider the following examples:<div class="Section1"><br /> <br /> &ldquo;If A creates a joint bank account for himself and B (or a similar type of ownership by which A can regain the entire fund without B&rsquo;s consent), there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn without any obligation to account for a part of the proceeds to A. Similarly, if A purchases a United States savings bond, registered as payable to &lsquo;A or B,&rsquo; there is a gift to B when B surrenders the bond for cash without any obligation to account for a part of the proceeds to A.&rdquo;<a href="#_ftn1" name="_ftnref1">¹</a> Likewise, &ldquo;where A, with his separate funds, creates a joint brokerage account for himself and B, and the securities purchased on behalf of the account are registered in the name of a nominee of the firm, A has not made a gift to B, for federal gift tax purposes, unless and until B draws upon the account for his own benefit without any obligation to account to A. If B makes a withdrawal under such circumstances, the value of the gift by A would be the sum of money or the value of the property actually withdrawn from the account by B.&rdquo;<a href="#_ftn2" name="_ftnref2">²</a> Thus, the creation of a joint account or similar type of ownership by itself, does not constitute a completed transfer from the creator and sole contributor if the creator and sole contributor can regain the existing account without the joint owner&rsquo;s<br /> consent.<br /> <br /> &ldquo;If A with his own funds purchases property and has the title conveyed to himself and B as joint owners, with rights of survivorship (other than a joint ownership described in [the foregoing paragraph]) but which rights may be defeated by either party severing his interest, there is a gift to B in the amount of half the value of the property.&rdquo;<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Where A purchases and registers U.S. Treasury notes in the names of &ldquo;A or B or survivor&rdquo; in a jurisdiction in which this registration creates a joint tenancy, there is a completed gift of the survivorship rights in the notes and an undivided one-half interest in the interest payments and redemption rights pertaining to the notes. In a jurisdiction in which a joint tenancy is not created by such registration, there is a gift of the survivorship rights in the interest payments and in the notes at maturity.<a href="#_ftn4" name="_ftnref4">⁴</a> Computation of the value of the gifts in both situations is set forth in Revenue Ruling 78-215.<br /> <br /> In the above examples, if A and B are spouses, any gift will be offset by the marital deduction to the extent available (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="912">912</a>).<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 25.2511-1(h)(4).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; Rev. Rul. 69-148, 1969-1 CB 226.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 25.2511-1(h)(5).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp; Rev. Rul. 78-215, 1978-1 CB 298.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 25.2523(d)-1.<br /> <br /> </div></div><br />

<div class="Section1">The gift tax annual exclusion is an exclusion of $10,000 as indexed ($18,000 in 2024, $17,000 in 2023, $16,000 in 2022, $15,000 in 2018-2021)<a href="#_ftn1" name="_ftnref1">¹</a> per calendar year per donee applied to gifts of a present interest in property. The $10,000 amount is adjusted for inflation, rounded down to the next lowest multiple of $1,000, after 1998. The exclusion is not cumulative; that is, an exclusion unused in one year cannot be carried over and used in a future year. A gift of a present interest is one in which the donee has the right to immediate possession, use, and enjoyment of the property.</div><br /> <div class="Section1"><br /> <br /> The exclusion does not apply to gifts of a future interest in property, i.e., the right to use and enjoy the property only in the future. For example, if G transfers income producing property in trust, the terms of which provide that the income from the trust property will be paid to A for lifetime and upon A’s death the trust property will be paid to B free of trust, A’s life income interest would be a present interest gift and B’s remainder interest would be a future interest gift. G would be allowed to exclude from the value of gifts reported on the gift tax return the value of A’s life income interest up to $18,000 (in 2024, assuming G made no other present interest gifts to A during the calendar year), but he would not be able to exclude any of the value of B’s remainder interest. If the trustee were given discretion to withhold payments of income to A and add such amounts to the trust corpus, A’s income interest would not be a present interest, and G would not be allowed to claim any exclusion.<br /> <br /> Substance over form analysis may be applied to deny annual exclusions where indirect transfers are used in an attempt to obtain inappropriate annual exclusions for gifts to intermediate recipients.<a href="#_ftn2" name="_ftnref2">²</a> For example, suppose A transfers $18,000 to each of B, C, and D in 2024. By arrangement, B, C, and D each immediately transfer $18,000 to E. The annual exclusion for A’s indirect transfers to E is limited to $18,000 and A has made taxable gifts of $36,000 to E.<br /> <br /> An outright gift of a bond, note (though bearing no interest until maturity), or other obligation which is to be discharged by payments in the future is a gift of a present interest. Normally, a direct gift of shares of corporate stock is a present interest gift. However, if the gift is made subject to a stock transfer restriction agreement under which the donee is prohibited for a period of time from selling or pledging the stock, it has been held that the gift is one of a future interest which does not qualify for the gift tax annual exclusion.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    Rev. Proc. 2016-55, Rev. Proc. 2017-58, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.    <em>Heyen v. U.S.</em>, 945 F.2d 359, 91-2 USTC ¶ 60,085 (10th Cir. 1991).<br /> <br /> </div>