Since the Gift and Estate Tax rates are unified which statement best describes the relative advantages of gift versus estate taxes?

Since the Gift and Estate Tax rates are unified which statement best describes the relative advantages of gift versus estate taxes?

• A. There are no tax advantages to making lifetime gifts.
• B. There are tax advantages to making lifetime gifts.
• C. There are tax advantages to making lifetime gifts only within three years of death of the donor.
• D. There are tax advantages to making lifetime gifts only when made more than three years before death of the donor.

Answer: (B)

When Gift and Estate Tax rates are the same, moving assets during life reduces the value that would be taxed at death, so those gifts can lower the overall tax burden on the family. Gifting lets you remove value from the donor’s estate and often use exclusions and exemptions to transfer wealth with little or no tax at the time of the gift, and the recipient may inherit with tax efficiency if planned carefully. There is a catch, though: gifts made within three years of the donor’s death are pulled back into the estate for tax purposes, which can dull or erase the anticipated advantage. So the general takeaway is that there are tax advantages to lifetime gifts, especially when planned well in advance of death, while gifts made within three years of death don’t escape estate taxation as a rule.

When Gift and Estate Tax rates are the same, moving assets during life reduces the value that would be taxed at death, so those gifts can lower the overall tax burden on the family. Gifting lets you remove value from the donor’s estate and often use exclusions and exemptions to transfer wealth with little or no tax at the time of the gift, and the recipient may inherit with tax efficiency if planned carefully.

There is a catch, though: gifts made within three years of the donor’s death are pulled back into the estate for tax purposes, which can dull or erase the anticipated advantage. So the general takeaway is that there are tax advantages to lifetime gifts, especially when planned well in advance of death, while gifts made within three years of death don’t escape estate taxation as a rule.