Discussion:Form 706 - Sections 2035 and 2040

Part 1. Decedent dies in May of 2007. In March of 2007 she and her partner purchase, as tenants in common, a parcel of real property. Days before death she transfers all of her interest in the property to the partner. I believe that 100% of the value of the decedent's interest comes back into the gross estate under Sec. 2035 and is reported on Schedule G. Q1: confirm this is correct. Q2: Is the estate entitled to a gift tax annual exclusion on the transfer? Assume no, but want to be sure. (Note: instructions to Form 706 for Schedule G suggest that transfers within 3 years of death are included in the estate ONLY if the transfer was of a life insurance policy or a transfer under Sections 2036, 2037 or 2038. Does the scenario I describe fall under 2036?)

Part 2. In 2005, decedent establishes a joint tenancy account with partner and transfers $200k of her own money. Partner makes no contribution to the account initially, but all subsequently contributions and withdrawals are made 50/50. Also, each taxpayer reports 50% of the income from the account on their individual tax returns from 2005 forward. I would like to take the position that the decedent made a gift of $100k to partner upon creation of the account and that only 50% of the account is included in decedent's gross estate. Q1: does a gift of joint tenancy property count as consideration made by the recipient? Q2: is the gift angle irrelevant given Section 2035? I'm confused as to what Sec. 2035 covers and doesn't cover.

Thanks.

Part 1: Did they each use their own proceeds to buy the 50% assume yes and therefore no gift at that time. So if decedent gave her 50% away prior to death and it is a completed gift agree with Dennis. One would have to file a gift tax return and if taxable(>$12K) would be included in the estate as a prior taxable gift. IRC 2035 only applies to life insurance correct. But if decedent retained the right to live there or other right you do not have a completed gift and her 50% might be included under 2036/2037. Q2 the estate is not a "donor" by definition and therefore gets no gift tax annual exclusion. The estate is treated as a pass thru entity gifts are treated as made by the benes.

Part 2 The establishment of a joint account does NOT result in a completed gift until the donee takes money out. Then you have gift tax filing issues. You cannot take the 100K gift position at time of creation. Who reports the interest has no effect. At death the balance of the account is included in decedents estate as Dennis noted. THe decedent contibuted all the monies to the account under the joint ownership reporting rules for estate inclusion. Q1 No Q2 again 2035 doesnt apply

bye