Gift vs estate tax
In Ed’s “time Bomb” book (page 8) he states that “paying a gift tax will cost less than paying an estate tax on the same amount of property” but I could not find an explanation of why this is so. Would someone please explain.
Thank you
Permalink Submitted by Sylvia Bell on Fri, 2008-08-08 14:00
Oops – page 8
Permalink Submitted by Al Fry on Fri, 2008-08-08 15:43
Gift tax (after three years) is “Exclusionary”, whereas Estate Tax id “Inclusionary”. In other words, if I make a gift of $2,012,000 to my daughter and still have my annual exclusion and lifetime exemption available, I will pay $x gift tax on the excess $1 million. If I live three years and die, the $12,000 and all the growth on the gift AND the $x gift tax is out of (Excluded from) my estate. If I do not make the gift and die three years later, the $12,000, all the growth AND the estate tax on the transfer is in (Included in) my estate. So basically, I am paying tax on tax. This example assumes another $2 million of assets was used for the credit shelter at my death.