Probate & Trust Law Section Conference Manual ... - Minnesota CLE

can P make the five-year election over the $10,000 gift to avoid a taxable gift for
2012? In other words, does the 2503(b) limitation for such year mean $13,000, or
$13,000 less any annual exclusion gifts made to such beneficiary earlier in the
year? The instructions to the gift tax return (2012) take the former position: “If
in 2012, you contributed more than $13,000 to a Qualified Tuition Plan (QTP) on
behalf of any one person, you may elect to treat up to $65,000 of the contribution
for that person as if you had made it ratably over a 5-year period.”
D. Proration of Excess Over Annual Exclusions. If the gift equals or is less than
five times the annual exclusion amount, and the election is made, the donor
reports one-fifth of the total contribution on the initial return, and one-fifth is
attributed to each of the next four years. If the gift exceeds five times the annual
exclusion, it is not clear when the excess should be reported. Section
529(e)(2)(B) appears to require that the entire gift, including any excess over five
times the annual exclusion, be reported ratably over the five-year period. The
Proposed Regulations and instructions to Form 709 (2012), however, require that
the excess be reported as a taxable gift in the first year. Prop. Treas. Reg.
§ 1.529-5(b)(2). The Advance Notice also takes this position:
Rule 2. The election applies to contributions to a section 529
account on behalf of a [Designated Beneficiary] during a calendar year
that exceed the gift tax exclusion amount for that year whether or not in
excess of five times the exclusion amount for the year. Any excess may
not be taken into account ratably and is treated as a taxable gift in the
calendar year of the contribution. . . .
The Advance Notice also provides two examples for the application of Rule 2.
E. Five-Year Proration Required. The donor does not have the option to prorate
the gift over a lesser number of years. For example, if the donor contributes
$28,000 in 2013 and makes the election, the donor will be treated as making a
$5,600 annual exclusion gift in each of years 2013-2017. The donor cannot elect
to treat the gift as if it were two $14,000 gifts in 2013 and 2014. Alternatively,
the five-year election could be made over a portion of the gift. If the five-year
election was made over $19,000 of the gift, $3,800 would be attributed to 2013.
The gifts for 2013 would be $12,800 (the $9,000 portion over which no election
was made plus $3,800).
F. Election. The donor must make the “five-year averaging” election on the Form
709 gift tax return.
1. Check Box. Form 709, Schedule A, Question B has a box to check if you
elect to treat transfers to a section 529 account as made ratably over five
years. Question B states: “Check here if you elect under section
529(c)(2)(B) to treat any transfers made this year to a qualified state
tuition program as made ratably over a 5-year period beginning this year.
See instructions. Attach explanation.”
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