Gift Tax at a Glance

The gift tax is imposed on gifts of an value, between two individuals. The gift tax may be imposed on the federal and local level.

There are some exemptions to the gift tax. For example, parents may give gifts of a certain value to their children tax free. The value of those gifts can not exceed a certain amount during the child's lifetime. In addition, the value of any one gift can not exceed a certain value, even if it falls below the lifetime limit.

There are other exemptions as well, such as gifts given between spouses, or gifts of money for educational purposes. However, most gifts are taxed and the rate of taxation depending on the value of the gift.

In order to avoid gift taxes, some individuals instead opt to set up a living trust or trust funds. For example, a parent may set up a living trust for their children and those monies may be used to pay for a life insurance policy on the parents. In this way, the children would then receive the money from the life insurance policy, which would be subjected to a different form of taxation, which would likely decrease the tax burden.

Gift taxes which do not include exemptions may be taxed at a high rate, depending on the value of the gift. Gifts given between non family members for example, are subjected to a high rate of taxation.

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