Estate & Gift Taxation — Overview
Death is not an inexpensive proposition. Besides the expenses associated with transferring property to heirs, the federal and state governments impose death taxes. For many estateholders, the death tax bill will be the single largest tax ever paid — unlike income taxes that periodically tax the creation of wealth, death taxes impose a levy against the total, lifetime accumulation of wealth.
Three Types of Transfer Tax
Other Tax Consequences of Estate Planning
In addition to transfer taxes, the estate planner must also consider other tax consequences of the estate plan. For example:
A lifetime gift of appreciated stock shifts the income tax on future dividends and capital gains to the recipient. Any appreciation in the shares after the gift becomes a taxable gain to the donee, not the donor. The donee also takes the donor’s original cost basis — meaning a large embedded gain may be inherited along with the asset.
By contrast, assets held until death generally receive a step-up in basis to their fair market value at the date of death, potentially eliminating the capital gain entirely for the heirs. This income tax advantage of holding appreciated assets until death must be weighed against the potential estate tax cost of keeping them in the taxable estate.
This program concentrates primarily on the transfer tax aspects of the planning process, but will note significant income tax considerations where they arise. The following pages cover the federal gift tax, the federal estate tax, the generation-skipping transfer tax, and state-level transfer taxes.