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Estate and Gift Taxes FEDERAL ESTATE AND GIFT TAXES AND PLANNING
Note: The following discussion is "as of" calendar year 2008. The Economic Growth and Tax Relief Reconciliation Act of 2001 has dramatically changed (and will eventually repeal, if for only one year) the federal estate tax and the way that this tax is shared with the 50 states. See the discussion under Legislative Watch.Federal tax is imposed upon the gratuitous transfer of property during life (gift tax) or upon death (estate tax). The two transfer taxes are "unified" (i.e., the rates for both are based upon the value of property gratuitously transferred and, except for the year 2010, these rates are the same for both estate and gift tax), except that the "unified credit" is not truly "unified" for estate tax and gift tax purposes for tax years prior to 2011. The gift tax unified credit excludes lifetime gifts totaling $1,000,000; the estate tax unified credit shelters $2,000,000 for 2008 and $3,500,000 for 2009. The estate tax is repealed for 2010, and then the exclusion of the unified credit goes back to $1,000,000 in 2011 (again "unifying" with the gift tax unified credit). California has no gift or estate tax. The rate of tax is progressive, starting at 18% and working up to 45% (for gifts and bequests totaling over $1,500,000). In addition to the "unified credit" against the gift tax, a person may give $12,000 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 $1,000 increments.)
There is a third tax that applies both to lifetime and deathtime 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 may give up to $2,000,000 to his or her grandchildren
in 2008 without
paying generation skipping tax (although generation skipping gifts and bequests will continue to be subject to gift and estate tax).
The generation skipping tax is repealed with
the estate tax in 2010. |
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