Retirement Accounts - Federal Estate and Gift Tax

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. Professionals

    5 Reasons Financial Advisors Still Choose Mutual Funds

    Take a look at five primary reasons why financial advisors still choose to recommend mutual funds over other types of investment vehicles.
  2. Brokers

    Broker-Dealer Industry 101: The Landscape

    Independent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
  3. Personal Finance

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  4. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  5. Professionals

    How To Answer Option Questions On The Series 7 Exam

    Learn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
  6. Professionals

    Series 55

    FINRA Series 55 Exam Guide
  7. Professionals

    Series 62

    FINRA Series 62 Exam Guide
  8. Professionals

    Series 99

    FINRA/NASAA Series 99 Exam Guide
  9. Professionals

    Series 65

    FINRA/NASAA Series 65 Exam Guide
  10. Professionals

    Series 6

    FINRA Series 6 Exam Guide
  1. No results found.
  1. Do financial advisors need to pass the Series 7 exam?

    The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
  2. Do financial advisors have to be licensed?

    Financial advisors must possess various securities licenses in order to sell investment products. The specific products an ... Read Full Answer >>
  3. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center