Inter Vivos Gifts: An Anachronism?

Abstract The article informs that several years have passed since enactment of the 1976 Tax Reform Act, but many tax practitioners are still unable to assess the advantages of an inter vivos gift. The 1976 Tax Reform Act created a number of changes in the taxation of estate and gift transfers. Previously gifts and estates were taxed separately and the gift tax rate was 15 percent of the estate tax rate; a one-time 30, 000 exemption for gifts and 30000 exemption for estate transfers existed. Under the new law, the one-time exemptions were repealed and replaced with a unified credit against the tax. The tax rates on estate and gift transfers was combined into one progressive rate schedule. Under the prior jaw, deathbed transfers were advantageous because the gift tax paid on the transfer was both excluded from the taxable estate and allowed as a credit against the estate tax. Previously, gifts within three years of the date of death were included in the gross estate unless the estate could demonstrate that the gifts were not made in contemplation of death. Under the new law, gift taxes paid on transfers which occur within three years of the date of death are included in the taxable estate along with the value of the gift.