You will also need to be familiar with federal estate and gift tax considerations for the Series 7 exam

Unification of Gift and Estate Taxes
A credit is an amount that eliminates or reduces tax. It used to be that the same unified credit amount applied to both the gift tax and the estate tax, but under current law there is a unified credit against taxable gifts and a separate unified credit against estate taxes.

  • Here, "unified" means that there is a lifetime maximum, rather than an annual maximum, for each credit.

  • These credits are defined in terms of how much tax is avoided, not how much the gift or bequeathal is worth.

  • The unified credit against taxable gifts is $345,800, exempting $1 million from tax. This figure is unlikely to change between 2005 and 2009.

  • The unified credit against estate tax; however, increases in steps during the same period from $555,800, exempting $1 million in bequeathals, to $1,455,800, exempting $3.5 million.

The general rule is that any gift is taxable except the following:

  • Gifts of less than $11,000
  • Someone else's tuition or medical expenses paid directly to a school or hospital
  • Gifts to one's spouse
  • Gifts to a political organization
  • Gifts to charities
  • For a married couple, each spouse can separately give up to $11,000 to the same person.

What Comprises a Person's Taxable Estate?
A person's taxable estate is his or her gross estate minus allowable deductions. Gross estate includes the value of all property in which your late client had an interest at the time of death, plus the following:

  • Life insurance proceeds payable to the client's estate or heirs
  • The value of certain annuities
  • The value of certain property transferred within three years before your client's death

Allowable deductions used in determining taxable estate include:

  • Funeral expenses
  • Debts owed at the time of death
  • Value of property that passes from the deceased to the surviving spouse

Lifetime Exclusion
The total amount of gift tax credit used during life reduces the credit available to use against estate tax. However, any unified credit not used to eliminate gift tax can be used to eliminate or reduce estate tax.



Custodial Accounts

Related Articles
  1. Financial Advisor

    How to Gift Your Way to Lower Estate Taxes

    Estate planning is not just for inheritance. High net-worth individuals, who plan properly, can gift their money and save on taxes.
  2. Retirement

    Estate Planning Law Changes You Need To Know

    When organizing your affairs, you'll need to be aware of tax rates and other regulations.
  3. Taxes

    What The New Gift Tax Rules Will Mean

    The lifetime maximum for gift taxes is $5.12 million. However, it could drop to $1 million. Here's what that will mean.
  4. Taxes

    What Are Gift Taxes?

    If you're not sure what gift taxes are, read on and we'll explain.
  5. Retirement

    Top 7 Estate Planning Mistakes

    Many people try to avoid this process altogether, making things difficult for heirs.
  6. Taxes

    10 Sources of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
  7. Taxes

    How Much Will You Owe on Your Inheritance?

    Estate planning can be unpleasant, but in order to get the full benefit of what you've inherited, it’s important to be prepared for the related taxes.
  8. Financial Advisor

    How Life Insurance Can Help Reduce Estate Taxes

    Inheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
  9. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  10. Retirement

    4 Thoughtful Retirement Gift Ideas for Men

    This"best gifts list" of the most thoughtful retirement gifts for men includes items appropriate as gifts from co-workers, friends or family members.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center