Course:  Estate Planning
Lesson 4: Transfer Taxation I – Common Elements of Estate and Gift Taxes

Student Question:

Hello,

Can I get some clarification on the Gift and Estate tax? As I understand it, individuals can gift up to $15,000 per year without “triggering” a gift tax; however, they still have the lifetime 
exemption of $11.58 million. Gifts over $15,000 per year merely reduce their lifetime federal estate tax credit, correct?

I’m not aware of a gift giver actually paying a “gift tax.” 

With this in mind, when would this tax table come into play? I can’t quite place it in context for the sake of the unified Tax Credit. 

As always, thank you.

Nate


Instructor Response:

Hi Nate,
 
Great question.
 
Only “taxable gifts” reduce an individual’s Basic Exclusion Amount for Gift and Estate Taxes.  

  • The Basic Exclusion Amount is the amount of wealth sheltered by the Unified Credit. 
  • If you go to the Gift and Estate Tax Tables and calculate the gift tax on an 11.58MM gift, you will arrive at a tentative gift tax of $4,577,800.
  • The 2020 Unified Credit is $4,577,800. 
  • After you subtract the Unified Credit from the tentative gift tax, the gift tax due is $0.

Taxable gifts are completed gifts reduced by:

  • Annual exclusion gifts
  • Unlimited marital deduction gifts
  • Unlimited charitable deduction gifts

Hence, annual exclusion gifts do not reduce the Basic Exclusion Amount.

For example, an individual gifting $1,000,000 to her U.S. citizen husband, $15,000 to each of the members of her Book Club, and $250,000 to a charity will have $0 taxable gifts.  She will consume none of her Basic Exclusion Amount.

How completely does this address your question?

Onward and Upward,
 
Bruce