What Is Unified Federal Estate and Gift Taxation

The federal estate tax is a transfer tax imposed on the privilege of transferring property at death, while the federal gift tax is imposed on the transfer of property during the property owner's lifetime. Both taxes are levied on the right to transfer property, and not on the property itself. The amount of tax payable, however, is measured by the value of the transferred property.

Elements of Unified Federal Estate and Gift Taxation

Unlimited Marital Deduction  The estate and gift tax marital deduction is unlimited, meaning that any amount can be transferred from one spouse to the other spouse, either during lifetime or at death, without being subject to federal gift or estate tax, so long as certain conditions are met.

In addition, the 2010 Tax Relief Act provides for "portability" of the maximum exclusion between spouses. This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax exclusion of his or her predeceased spouse. As a result, with this election and careful estate planning, married couples can effectively shield up to $10 million from the federal estate and gift tax.

Federal Estate and Gift Tax Rates  The federal estate and gift tax rates consist of a single unified table that is progressive and applied to the cumulative value of all taxable lifetime gifts and to transfers at death. In 2011 and 2012, the unified rates begin at 18% of a taxable gift or estate that does not exceed $10,000 and increase to 35% of a taxable gift or estate that exceeds $500,000.

Note: Due to a "sunset" provision in the 2010 Tax Relief Act, the current marital deduction and estate and gift tax rules terminate at the end of 2012, at which time, without future Congressional action, the federal estate and gift tax rules revert to those in effect in 2001.