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Posted by Paul on November 5, 2007, 12:11 pm
Im confused about something. Lets assume a mother gives a son 32k per year
as a gift. We know that currently, 12k per year may be given with no tax
ramifications. That leaves $20k which must be reported. So, for this tax
year, she submits form 709 which will reduce her remaining unified credit of
$345,800 to $341,800. And, lets say this exact strategy is used for the next
9 years, after which, mom dies.
Over this period, a total of $200k has been gifted and reported OVER the
allowed annual exclusion of $12k.. This reduces the unified gift exclusion
down to $305,800 ( ($20,000 * 10yrs) * 20% gift tax = $40,000 ).
Lets say that, when mom dies, the estate tax exclusion, tax rates, etc, are
as today: $2,000,000, and lets say that Mom's estate is appraised at exactly
$2,000,000 at time of death. My question to you is, what effect does this 10
yr gifting activity have on the amount of the estate tax levied? Is the
estate tax exclusion of $2,000,000 reduced by $40k, resulting in a tax,
calculated on $40k of ~ $45%? Or, is the gifting activity, so long as it
doesnt exceed the unified gift tax amount of $345,800, not taxable?
All of the material Ive read is very clear about the gifting and estate tax
exclusions, BUT none of them seem to address the above scenario. They dont
seem to tell us if, or how the gift tax and estate tax exclusions are ever
joined at time of death, or, what effect one has on the other. They kind of
leave that to the imagination.. .Not Good...
Paul
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