Question

Describe the unified transfer tax system and explain how taxable gifts affect the estate tax. Give an example.

Answer 1

When you give assets to someone—whether cash, stocks or a car—the government may want to know about it and may even want to collect some taxes. Fortunately, a large portion of your gifts or estate is excluded from taxation, and there are numerous ways to give assets tax free, including these:

• Using the annual gift tax exclusion
• Using the lifetime gift and estate tax exemption
• Making direct payments to medical and educational providers on behalf of a loved one

In general, it’s better to give assets to your loved ones while you’re still alive rather than after you pass away. Giving today allows your loved ones to benefit from your gifts right away and gives you the enjoyment of seeing your gifts improve their lives. In addition, those gifts can grow in value in their hands, rather than yours, which helps reduce your taxable estate.