Question

Although Gift and Estate tax are considered uniform transfer taxes, they are calculated and applied differently. Please explain when each tax is applied. Your answer should also include identifying and explaining at least three differences in how the Gift and Estate tax are calculated.

Answer 1

Gift tax is the tax applied by the government on the transfer of property or anything of value to another person without taking anything in exchange or receiving value less than the full value in exchange. Tax is calculated on the value of gift that is in excess of the minimum limit. The gift is anything of value, money, property, goods, tangible or intangible items, given to anyone in exchange for a less value or nothing in return.

There are exemptions for different types of gifts like those given in marriage, party, to child, grandchild etc. There are different classes for exemption.

Rate for tax changes according to difference in year between death and gift given time.

Main difference between gift tax and estate tax is that gift tax is applied on the transfer of property during your lifetime(when you are alive), whereas estate tax is applied on the property transferred after death.

Estate tax is the tax imposed by the government on the transfer of property by your estate after death. It is also called death tax as it is levied on the assets of a deceased individual.

It is calculated by subtracting any of the applicable deductions that you must have from the total or gross value (market value) of the estate. Only the Amount that exceeds the minimum limit is taxable.

Under the unlimited marital status, whereby estate is transferred to the spouse, estate tax is not applicable. When spouse will die, the inherited estate will be transferred to the nominee and the nominee will have to pay the tax.

Estates valuing below $1,000,000 are not taxed.