The estate tax exclusion and the lifetime gift tax exclusion used to be unified. However, in 2010 there is no longer an estate tax, and therefore no estate tax exclusion for the gift tax exclusion to be unified with. If a maximum exclusion gift is made in 2010, and the gifter dies in 2011, will the gift tax exclusion then be unified with the 2011 estate tax exclusion, effectively canceling one of them out?
This is an area of law that is in a state of flux right now so it is not really possible to give a guaranteed response. My best guess would be, since there is still a gift tax for 2010, presumably, IF congress does not act to significantly change the estate tax structure, gifts made in 2010 for the maximum exclusion amount will still reduce the available estate tax exclusion for deaths of individuals occuring in 2011 and beyond.
Please Note: This does not constitute legal advice, nor does it create an attorney/client relationship. Estate and gift tax are complex areas of the law and actions taken may have a significant impact on an individual's tax exposure, so it is strongly recommend that you consult with an attorney before taking any actions that may generate a potential estate or gift tax or before making potentially taxable gifts.
I agree with Attorney Smith in that it is impossible to guess what Congress will or will not do with the federal estate tax. In addition, whenever you engage in strategic planning for tax purposes, you must be sure to include the effect of your state's inheritance or estate tax laws.
More importantly, the IRS has usually included all gifts made within three years of the date of the decedent's death in the calculations for the taxable estate. The IRS has not released instructions for calculating estate tax for decedents dying after January 1, 2010, but the most recently published instructions make it clear that a gift made within three years of the date of death is included for all deaths prior to January 1, 2010.
Because the law is in such a state of uncertainty, you should be sure to work with an attorney who is highly qualified in estate planning and tax matters in your jurisdiction before you make any substantial gifts.
This answer is not intended to provide specific legal advice. No attorney client relationship between you and Shoffner & Associates or any of its attorneys is established, intended ,or implied. This answer should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction regarding your particular situation.
The unified system of gift and estate taxes is there for one reason and one reason only: Gifts made during life must reduce any available exemption at death. This has been the system for quite some time. To my way of thinking, there is no way that a person who makes a gift of a million dollars in 2010 will be able to do so without it impacting the death time exemption in the future. Simply no way. But this is only the opinion of a dumb estates attorney who has been practicing in this area for 33 years.
Note, however, that this should not stop someone from making such gifts especially if the gift is of a highly appreciating asset, or one that will deflect income out of the donor's taxable estate or may result in the use of minority interest or lack of marketability discounts.
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Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties. He can be reached at 215-735-2336 or at the email address listed below. He has received a 9.7 rating from AVVO and recently was featured as a 5Star Wealth Manager in the Philadelphia Magazine, November 2009 issue on page 123.
Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received.
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