CFP® Practice Question: Gift and Generation Skipping Transfer Taxes

Austin, an unmarried man, has one son named Perry. Perry has one daughter named Kayla. Austin made no prior year taxable gifts but made two taxable gifts in the current year, including:

A taxable gift to Perry in the amount of the current year basic exclusion amount on January 1 and
A taxable gift to Kayla in the same amount on June 30 of the current year.

Which of these taxable gifts will create a transfer tax liability for Austin?

1. Neither one of the taxable gifts will incur a transfer fax
2. Gift tax on the gift to Kayla
3. Generation skipping transfer tax (GSTT) on the gift to Kayla
4. Gift tax on the gift to Perry

CLICK TO REVEAL ANSWER

Once Austin used all of his lifetime basic exclusion amount (BEA) to shelter the taxable gift to Perry, he had no BEA remaining to shelter the subsequent gift to Kayla from gift tax.

A taxable gift is subject to the gift tax and, if the donee is a skip person, also subject to the GSTT.
Austin used his BEA to shelter the taxable gift to Perry from gift tax.
Austin used his GSTT exemption to shelter the taxable gift to Kayla from the GSTT.
There was no BEA available to shelter the gift to Kayla from gift taxes.

The answer is “2.” Austin must pay gift tax on the gift to Kayla.

Posted in CFP® Practice Question

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