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 Are Gift Taxes?

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

    Gift-Giving Etiquette

    Here's a look at how much you should spend and what you should give this holiday season.
  5. Taxes

    10 Sources of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
  6. 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.
  7. 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.
  8. Personal Finance

    6 Tips For Getting The Most Out Of Gift Cards

    Gift cards are big business, amounting to an estimated $91 billion in annual retail spending. Get the most bang for your gift card buck.
  9. Insights

    Will Your Gift Card Gift Go Unused?

    An unbelievable amount of money gets wasted in the form of non-redemption: nearly $5 billion a year. These tips will ensure that your gift card gift doesn't go to waste.
Frequently Asked Questions
  1. Can I fund a Traditional IRA, a 403(b) or a Roth IRA using pension money?

    Can pension money be used to fund other retirement accounts?
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ...
  3. How does a company move from an OTC market to a major exchange?

    The over-the-counter market is not an actual exchange like the NYSE or Nasdaq. Instead, it is a network of companies that ...
  4. Can I roll a traditional IRA into a 529 college account for my grandchild?

    The short answer: Not without paying taxes. But as with much of the tax code, there are various nuisances and exemptions ...
Trading Center