Gift Tax
Generally applies to lifetime transfers for less than full value. Annual exclusions, lifetime exclusions, deductions, valuation rules, and reporting requirements may affect whether tax is due.
Use current professional advice
Federal tax exclusions, deductions, rates, elections, regulations, and planning opportunities can change through legislation and administrative guidance. This page explains general concepts only and intentionally omits dollar thresholds that may become obsolete. Confirm current law and filing requirements with qualified legal and tax advisers.
The federal transfer-tax system
Three related federal taxes can apply when wealth is transferred during life or at death.
Estate Tax
Generally applies to a decedent’s taxable estate after permitted deductions and credits. Asset values, ownership, beneficiary arrangements, prior taxable gifts, and elections can affect the calculation.
Generation-Skipping Transfer Tax
May apply to certain transfers to grandchildren, more remote descendants, or unrelated persons in younger generations, whether made directly or through a trust.
Income Tax
Although not a transfer tax, income-tax basis, capital gains, trust taxation, retirement benefits, and state income taxes can materially change the net result of a plan.
Exclusions and deductions
Applicable exclusion
Federal law generally allows a cumulative amount of taxable transfers to be sheltered from gift and estate tax. The amount, inflation adjustments, and relationship between lifetime and death-time transfers are subject to change.
Annual gift-tax exclusion
Certain present-interest gifts may qualify for an annual exclusion for each recipient. Qualification, amount, split-gift elections, and reporting requirements should be reviewed under current law.
Marital and charitable deductions
Qualifying transfers to a spouse or charity may receive deductions, but citizenship, trust terms, timing, and other technical requirements can matter.
Portability and elections
A surviving spouse may benefit from elections relating to a deceased spouse’s unused exclusion. Elections typically require a timely and properly prepared estate-tax return even when no tax is otherwise due.
Nontax goals come first
Lifetime Security
Do not give away or restrict assets needed for personal support, health care, housing, flexibility, or peace of mind merely to pursue a tax result.
Beneficiary Protection
Trust terms may protect beneficiaries from immaturity, disability, creditors, marital claims, or poor financial judgment while allowing appropriate support.
Control and Administration
Tax strategies often require irrevocable transfers, independent fiduciaries, appraisals, tax returns, separate accounts, and ongoing compliance.
Family and Charitable Purpose
A sound plan should reflect relationships, values, business goals, charitable intent, and fairness—not simply minimize tax.
Common trust concepts
Bypass or credit-shelter trust
A trust may be designed to use one spouse’s available exclusion while providing benefits for the surviving spouse and preserving property for later beneficiaries. Tax results, basis consequences, control, and administrative burdens must be evaluated under current law.
A/B and A/B/C trust divisions
Some joint trusts divide after the first death into a survivor’s trust and one or more irrevocable trusts, which may include a credit-shelter trust and a marital or QTIP trust. Funding formulas and elections require careful administration.
Beyond the basics
More advanced strategies may involve lifetime gifts, irrevocable trusts, charitable trusts, business entities, valuation planning, retained interests, insurance planning, or generation-skipping planning. Each strategy has technical requirements, costs, and risks.
Do not rely on historical figures
Earlier versions of this page contained year-by-year federal exclusion amounts and rates. Those figures were removed from this summary because they become outdated. Use current IRS guidance and professional advice for any calculation or filing decision.