What is gift tax and how does it apply to making lifetime gifts?

In 2012, individuals are allowed to make lifetime gifts of up to $5,133,000, and couples are allowed to make lifetime gifts of up to $10,266,000 before the 35% marginal rate on gifts are applicable.  The reason gift and estate taxes are often discussed at the same time is because any amount gifted during one’s lifetime will minimize the amount of their exemption.

For example, if an individual gifted $5,133,000, still had an estate worth $10,000,000 post-gift, and dies later this year, they would be subject to a marginal rate of tax of 35% of $10,000,000. In other words, you can’t double dip in both the estate and gift tax.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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