How are the federal estate tax and gift tax connected?

Connected Hands

Do you know why the federal estate tax and the federal gift tax are often addressed in the same discussion?

 
Although the federal estate tax and federal gift tax are separate statutes, they are connected by what is known as the unified credit.
 

The unified credit is automatically provided by the IRS Code to every US citizen at their birth. This credit is the amount of property that a person can gift away before they owe any tax to the IRS.

That means that all the gifts you make during your life are added to all the gifts you make at your death (through an Oklahoma Trust, Oklahoma Will, or otherwise) and that is the basic amount that the IRS considers for taxation.

 
However, before any tax is assessed, you get to subtract (use your “coupon” so to speak) to reduce the amount.  The coupon can be applied to all gifts during life and at death.
 
So, while a person could use their whole coupon during their life, there is no requirement that they do so.  If there is an amount left on the coupon at death, the amount can be applied.

Posted by Shawn Roberts

On this blog, I write about and try to answer practical Oklahoma legal questions. My focus and most experience is in estate planning and business issues including Oklahoma non-compete law. I make a living as an attorney in the law firm I founded, Shawn J. Roberts, P.C. in Oklahoma City. I live in Edmond with my wife Amy and my two children, Sam (19) and David (11). We live precisely in the path of where the "wind comes sweeping down the plains."