The gift tax unified credit that is available with respect to taxable transfers by gift is $345,800, which effectively exempts a total of $1 million. You can give away a cumulative total of up to $1 million to whomever during your life without owing any federal gift tax. The gift tax is imposed on lifetime transfers of property for less than adequate and full consideration in money or money's worth. A transfer is subject to gift tax once it becomes a completed gift. To the extent you use this exemption credit against a gift tax liability, it reduces (or eliminates) the credit available for use against the federal estate tax at your death as the total amount of taxable gifts given during your life would be cumulated and subtracted from your regular unified credit available in the year of death ($2 million in 2008 and $3.5 million in 2009).
The gift tax is said to be determined on a tax-exclusive basis. In contrast, at your death, your gross estate includes the money that will be used to pay the estate tax (a tax-inclusive calculation). If you made substantial lifetime gifts, you may enjoy a significantly lower tax on the gifts than ultimate estate tax because the money used to pay the gift tax is never included in the tax base used to calculate the amount of the gift (you must survive the gift for three years).
There is an annual gift tax statutory exclusion in the amount of $12,000 for 2008 that allows an individual to make gifts up to this amount to multiple donees each year free of tax (Lifetime Gifts Using the Annual Exclusion). Additionally, most gifts or transfers between spouses pass free from gift and estate taxation (see Marital Deduction and Utilizing the Unified Credit). Also, there are multiple tax benefits involved with gifts or transfers to qualified charities (see Charitable Trusts).
The tax on gifts given during your lifetime over the unified credit amount is currently 45%. The gift-tax exemption doesn't increase over the next few years nor will it be repealed in 2010 and restored in 2011 as with the federal estate and generation skipping transfer tax. The top gift tax rate for 2008 and 2009 is 45 percent. In 2010, the top gift tax rate will be 35 percent. In 2011, the top gift rate will be 55 percent.
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The Santa Monica, California Law Offices of Robert ML Baker III represents clients throughout Los Angeles County, including the cities of West Hollywood, Westwood, Beverly Hills, Culver City, Malibu, Encino, Marina Del Rey, West Los Angeles (West LA), Santa Monica, Venice, Los Angeles, Sherman Oaks and the South Bay.
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