Bottom Shelf with George Gabler: Estate and Gift Taxes

Hi this is George Gabler  - - Welcome to Bottom Shelf – Where we try to make complicated business and tax concepts easy to understand.Today we are going to talk about Federal Estate and Gift Tax Basics.The Federal Estate tax and, Gift Tax, and something called the Generation Skipping Tax are all inter-related.

In the United States one can transfer only a certain amount of wealth without incurring a huge tax.  The exact amount changes each year, but for 2016 the total that can be sent down to the next generation tax-free is $5,450,000.  If you die and leave more than $5.450 million to your heirs, then the excess is taxed at a very high Estate Tax rate.

To avoid the estate tax someone might say, ‘Hey, let’s just give it away before we die, then we will miss the Estate Tax.”To close this loophole, the tax man considers gifts made to non-charitable entities to be just like distributions made at death.

That’s why the gift tax is related to the estate tax.   Because whether you distribute assets when you die or whether you give them away – both types of distributions are taxed similarly.

On a hopeful note - you may give up to $14,000 gift-tax free to multiple recipients each year. Any non-charitable gifts above this annual exclusion amount, must be reported. If the cumulative total of your annual gifts or the death related bequests ever exceed the lifetime taxable threshold, then either the gift tax or the estate tax will be due.

So, whether you give your assets away, or lose them at death – there is the possibility of a big tax hit.Suppose someone says, “Hey, why not just give the money to the grandkids and skip some of this gift or estate tax.” Well, congress beat you to the punch on this one too, by creating the “generation skipping transfer tax”.  As you might guess – it is a special tax designed to keep the tax-man from losing his haul if a generation is ever passed over.

These rules are complicated and detailed, so we urge you to seek competent legal and tax advice when considering this matter.

But, I do want to give you a few key planning ideas:


First, gift, estate and generation skipping taxes are paid by the donor or decedents estate, not by the heirs or recipients.

Secondly, if you give appreciated assets away, the recipients will eventually need to pay income tax on the appreciation and any other gain.

  • Gifts to your spouse are never subject to estate of gift tax, unless you make special elections to have them taxed.

  • Don’t hesitate to use the annual $14,000 exclusion amount to make annual gifts to as many individuals as you please.

  • Even many smaller estates need to consider these issues, because any part of the unused lifetime gifting limit can be passed to one’s spouse.  

  • Some assets are better to give away than others.  I like to say, it’s easier to give away the seed than the tree, and certainly it’s easier to give away the tree than the forest.  In other words, if you have assets that you think might greatly appreciate (like a closely-held business interest, or certain great real-estate) then the sooner you give it away the less gift or estate tax it will cost you.

  • On the other hand, sometimes it is better to hold onto appreciating assets.  The reason is that appreciated assets receive a stepped-up tax basis at ones death, and that would generally reduce or even eliminate any income tax due when the heirs or the estate sell the asset.


I hope this is helpful, and if you have any questions, please get in touch.

You can reach us at 828-281-3161 or on the web at

Until next time !!!

George Gabler, tax consultant  828-771-5000