Question

Megan gave a $22,000 taxable gift (after the application of any relevant annual exclusion) to her son, charles, in 2020. she reported the gift on a gift tax return, but paid no tax because she had not yet exceeded her basic exclusion amount. in 2022, megan died subject to the estate tax. how will the 2020 gift affect megan's estate tax return?

A. the total amount that the estate can pass on tax-free is reduced by $22,000.
B. charles must file a gift tax return in 2022.
C. megan's estate will be subject to the generation-skipping transfer tax.
D. a $22,000 credit will be applied on the estate's form 706.

Answer 1

The $22,000 gift Megan made to her son Charles in 2020 will be added to her overall estate value for estate tax purposes upon her death in 2022. This could potentially increase the estate tax owed if her estate exceeds the exclusion amount. The generation-skipping transfer tax does not apply here because Charles is not a skip-generation beneficiary.

Step-by-step explanation:

Megan's $22,000 taxable gift to her son Charles, reported on a gift tax return in 2020, will have specific implications on her estate tax calculations upon her death in 2022. Since Megan had not exceeded her basic exclusion amount when she made the gift, no tax was paid at that time. However, the Internal Revenue Service (IRS) requires that such gifts, even when not immediately taxed due to available exclusions, must be accounted for in the value of the estate upon the individual's death.

This is done to ensure that the total value of the gifts made during the lifetime that exceeds annual exclusions is considered when computing the eventual estate tax liability. Thus, the $22,000 gift will be added back to Megan's overall estate value for estate tax purposes, potentially increasing the estate tax if the cumulative gifts and the estate exceed the exclusion threshold in effect at the time of death.

It should be noted that the generation-skipping transfer tax (GSTT) is not applicable in this case since the gift was made to Megan's son, not a skip-generation beneficiary, such as a grandchild or any unrelated individual more than 37.5 years younger than Megan.