Unified Credit Exemption

Written Assignment #1- Module #3
Topic #1: Gift vs. Inheritance
Question #1: Identify the availability of exemptions for gift and estate taxes? Answer: There is an exemption for gift and estate taxes called the Unified Credit Exemption. This exemption is a lifetime credit, which was established in 1976 and has since increased frequently to match inflation (Jacobson, Raub, & Johnson). Currently the credit available is 5.43 million dollars and spouses have the potential to fully utilize their exemptions though the establishment of limited portability (Devliger & Carmona, 2012).

Question #2: Can an individual transfer some assets to a trust and count it as a gift? Answer: Yes. Since the Crummey case in 1968, transfer made to a trust can

Within this co-ownership, the portion of the property that belongs to any given individual is considered to be controlled by that individual fully. As a result, even though co-ownership is in place, any individual in a tenancy in common has the legal right and the ability to freely transfer their interest to another individual. Therefore, their interest can be gifted, sold, or given through an inheritance upon the current owner’s death. Since the transfer of the property is typically not restricted, the transfers would fall under the unified credit exemption, the annual exclusion, and the step-up or carry over basis, based on

For example, while both spouses are alive, both parties must consent to the transfer of the community property. In addition, the annual gift exemption can be combined and fully applied (since there is equal ownership), allowing for the spouses to receive the maximum exclusion for gift transfers (Leimberg, Shenkman, Katz, Kandell, & Miller, 2015). In contrast to the requirement for consent, upon death a spouse may transfer their share in the property as they see fit, however it is often transferred to the spouse.

Topic #3: Wills
Question #1: What happens if you do not have a will? Answer: if someone passes away and they do not have a will, their estate will enter intestate procedures. Each state has different procedures for handling assets these assets, but the fundamentals are technically the same. Within most states a percentage of the assets (ranging from half to two thirds) will go to the deceased children, with the remaining going to the spouse. If one of the parties mentioned above are non-applicable, the assets would shift fully to the applicable party. Complication may arise is there are no children or spouse alive. When this occurs, the state flows down the family tree (sometimes as far as the decedents of the deceased great-grand parent) in order to find and locate living relative to give the assets to. If this search is unsuccessful,