What Is Federal Gift & Estate Tax?

The federal gift tax is a tax that applies to property gifts made during your lifetime. The federal estate tax is a tax that applies to property transfers that take place after you die.

Time Frame

The federal gift tax only applies while you, the person making the gift, are still alive. As soon as you die, the federal estate tax applies and the gift tax no longer does.

Gift Tax, Generally

Each year during your life, you can give any one person up to $13,000 (as of 2009) without needing to pay the federal gift tax. However, if you exceed $13,000 then you, the person giving the gift, must pay a gift tax on the amount above $13,000.

Estate Tax, Generally

When you die, all of your property that you own at the time of death collectively makes up your "estate." If the total value of your estate exceeds $3.5 million (as of 2009) then your estate will have to pay an estate tax on the portion that exceeds $3.5 million.

Gift Tax Exceptions

The federal gift tax allows you to give up to $1 million in lifetime gifts to one person, tax-free.

Estate Tax Exceptions

The estate tax does not apply to any transfers to a spouse or to a charity. So if you have $6 million when you die, but you leave $3 million to your spouse and $3 million to your church, your estate will not have to pay any estate tax.

References

• Nolo's Estate Planning Basics; Attorney Denis Clifford; 2009