Estate and Gift Taxes
FEDERAL ESTATE AND GIFT TAXES AND PLANNING
Note: The following discussion
very briefly addresses gift, estate, and
generation skipping taxes as of 2011 and
through 12-31-2012. (H.R.4853
-- Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of
2010 -- "sunsets" after 12-31-2012.)
Federal tax is imposed upon the gratuitous transfer of property during life (gift tax) or upon death (estate tax). The two
transfer taxes have been
"unified" (i.e., the rates for both are based upon the value of property gratuitously transferred and these rates are the same for
both estate and gift tax). For 2011 the "unified credit" for gift and estate
tax purposes shelters $5,000,000 from those taxes; for 2012 that
$5,000,000 is indexed for inflation.
A deceased spouse may leave
all of his property to the surviving spouse and the surviving spouse may
then use the deceased spouse's unused "unified credit" in addition to
his or her own; this means that the surviving spouse may leave up to
$10,000,000 free of estate tax (assuming that neither spouse made
taxable gifts during lifetime).
The rate of tax is progressive, starting at
18% and working up to 35% (for gifts and bequests totaling over $500,000).
In addition to the "unified credit" against
the gift tax, a person may give $13,000 annually to as many persons as he or she wishes so long as
those gifts are of a "present interest." (This "annual exclusion" amount is
indexed for inflation, going up only in
California has no gift
or estate tax.
There is a third tax that applies both to lifetime and death-time gifts -- the
generation skipping tax. This is a complex tax scheme
that imposes a flat tax on transfers to or for the benefit of grandchildren (and
those of that generation). The rate of that
tax is equal to the maximum estate tax rate
There is a generation skipping tax exemption
equal to the estate tax exemption, so a grandparent
could have given up to $5,000,000 to his or
her grandchildren in 2010 without paying
generation skipping tax (although generation
skipping gifts and bequests will continue to
be subject to gift and estate tax).