Unified Gift and Estate Tax Rates

      If the amount is:               Tax is: 
    Over     But not over         Tax       +%    Excess Over
  
$        0    $   10,000               0    18    $        0
    10,000        20,000           1,800    20        10,000
    20,000        40,000           3,800    22        20,000
    40,000        60,000           8,200    24        40,000
    60,000        80,000          13,000    26        60,000
    80,000       100,000          18,200    28        80,000
   100,000       150,000          23,800    30       100,000  
   150,000       250,000          38,800    32       150,000
   250,000       500,000          70,800    34       250,000
   500,000       750,000         155,800    37       500,000
   750,000     1,000,000         248,300    39       750,000
 1,000,000     1,250,000         345,800    41     1,000,000
 1,250,000     1,500,000         448,300    43     1,250,000
 1,500,000     2,000,000         555,800    45     1,500,000
 2,000,000     2,500,000         780,800    49     2,000,000
 2,500,000     3,000,000       1,025,800    53     2,500,000
 3,000,000     .........       1,290,800    55     3,000,000

Example--Fred Flood dies in 1999 leaving a taxable estate of $800,000. From the table, the tax on the first $750,000 is $248,300. The excess is $50,000 ($800,000 less $750,000). The tax on that amount is $19,500 (39% of $50,000). The total is $267,800 ($248,300 plus $50,000). However, everyone is entitled to a unified estate and gift tax credit of $211,300 (unless used for gifts before death). Thus, the tax on Fred's estate is $267,800 less $211,300, or $56,500.

We've included the applicable exclusion amounts so that you can quickly determine the level at which the estate tax cuts in. For example, if Fred's taxable estate were only $640,000 when he died in 1999, he would owe no tax.

Note 1. The benefits of the graduated rates and the unified credit are phased out for estates of over $10,000,000.

Annual Gift Tax Exclusion

Each individual is entitled to an annual gift tax exclusion. For 1998 the amount is $10,000 ($20,000 if a spouse consents to the gift). This amount will be indexed for inflation beginning in 1999. The exclusion applies per donor and per donee.

Example--Fred Flood has 2 children and 4 grandchildren. He can give each child and grandchild $10,000 per year without incurring a gift tax liability. Thus, he can give away $60,000 (6 donees times $10,000) per year. If he's married, his spouse can make the same gifts, again without a gift tax liability. The couple could reduce their estate by $120,000 a year using this approach.

If each spouse has their own property to give away, each can make $10,000 annual gifts. But what if they jointly own property? Or one spouse owns property that he or she wants to gift but doesn't want to split. The law allows a spouse to consent to the gift, increasing the limit to $20,000.

Example--Fred Flood owns 3 acres of land worth $18,000 he wants to give to his daughter. He can use his and his wife's exclusion by filing a gift tax return on which his wife consents to the gift, effectively increasing his limit to $20,000. (Of course, his wife then couldn't make a gift to the same daughter without incurring a tax liability.

In actuality, higher gifts may not incur an immediate tax liability, but will reduce your unified estate and gift tax credit. For example, for 1998 the credit is equal to $202,050 or an estate of $625,000. If Fred made a $30,000 gift and used the $10,000 exclusion, the excess amount of $20,000 would reduce the $202,050 credit ($625,000 exclusion) so that on his death estate taxes might be due.