Estate and Gift Taxes at a Glance

The estate tax and the gift tax, have been the subject of taxpayer dispute since both taxes were implemented. The estate tax is imposed after the death of the benefactor, while the gift tax is imposed on gifts made during their lifetime. In most cases, the gift tax is the responsibility of the benefactor, but not always. The estate tax is the burden of the estate, not the beneficiaries. The beneficiaries may be subjected to an inheritance tax, which is a separate from the estate tax.

In most states, children can receive a lifetime gift of a certain amount, tax free. On the federal level, children can receive a gift of up to one million dollars tax free, from their parents, in their lifetime. However, no more than fourteen thousand dollars can be gifted tax free, in any tax year. Each state may have differing gift limits for the tax year.

There are also some special considerations for the gift tax. For example, if an individual pays somebody's medical bills, or tuition, the gift is tax exempt. There does not have to be a family relationship between the individuals, in order for those gifts to be tax exempt. In addition, gifts between spouse, are generally granted a gift tax exemption. Charitable gifts, including those to political campaigns, are also exempt from the gift tax in most cases.

The estate tax is imposed after the benefactor has passed away. The estate tax is paid from the value of the estate. The estate is generally taxed at its value, on the day the benefactor passes away. The value of the estate is based on fair market value, rather than what any item cost new. Many items will significantly increase in value, and others decrease, when utilizing the fair market value system.

Like the federal estate tax, most states allow for deductions from the value of the estate. Those deductions include funeral expenses, benefactor debt and estate administrative costs. Many states have allowed their estate taxes to lapse, in response to the federal government allowing their to lapse. In 2011, the Federal estate tax will be reintroduced, yet some states are choosing not to reinstate their estate tax.

The gift tax is implemented in many states. However, the rate of tax, and allowable deductions will vary in each tax jurisdiction. In addition estate taxes are imposed in several states, but the rates are effected by many intervening factors. Each tax jurisdiction will have varying allowable deductions and exemptions for the estate tax and the inheritance tax.

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