When property is gratuitously transferred from one individual to another, it is considered a gift in the eyes of the government. This gift may be subject to the gift tax depending on how much the gift is worth and whether an individual has any of his or her gift tax exemption available. Property that is transferred from one person to another after an individual passes on may be subject to estate tax.
The gift and estate tax exemption for 2015 is $5.43 million and is indexed for inflation. Therefore, an individual would not owe taxes on any amount gifted up to the lifetime limit either during life or after death. If any portion of any estate is transferred to certain trusts that benefits a spouse or is transferred to a spouse, those assets will not be subject to gift or estate taxes.
Since 2011, the estate tax exemption has been portable between spouses. In other words, any portion of an estate tax exemption not used by one spouse can be used by the other spouse. This means that a married couple could have access to up to $10.86 million estate tax exemption. In addition to the lifetime exemptions, an individual may be able to give gifts each year without affecting his or her lifetime tax exemption.
The gift tax may be one factor to be taken into account when creating an estate plan. Although most people will never go past their estate tax exemption, there may other reasons why an individual would want to create a trust or will. For instance, creating a trust may avoid probate, which could enable heirs to get their property faster. Those who are interested in creating an estate plan may wish to do so with the help of an attorney.