Question

Gift tax relationship with Estate Tax

Describe how the gift tax is related to the estate tax. Give some examples.

Answer 1

GIFT TAX: Gift Tax shall arise on any transfer of anything of value such as jewellery, land etc made during the life time of assessee to another person and in exchange of No consideration or consideration less than the fair value of object.

ESTATE TAX: EstateTax shall arise on any transfer of anything of value such as jewellery, land etc by the virtue of law ie estate inherited by the legal hiers provided that it exceeds the specified amount and not transferred to spouse as spouse is not considered as legal hier.

Generally, we can say that gift tax is imposed for transfers made during the life time of assessee whereas estate tax is imposed on transers made after the death of assesse due to inheritence.

Gift and Estate tax goes hand in hand as they both share same limits of $5.49 Millions, same tax rate ie 40%. hence they are in sync with one another always.

Let suppose, Parent wants to give the Asset/Money to their child. During the lifetime, they get a exemption of $5.49 Million, they can give freely such amount to their children, without giving a single penny of Gift tax and after their death, their children could inherit the same amount ie $5.49 Million without giving a thought abount Estate Tax. However in both cases, if the amound exceeds the threshold limit, they are liable to pay tax @ 40%.

More examples: Cash, Land, House, Jewellery, Stocks, Bonds, Trusts etc,