For gifts made in 2007 and thereafter the annual exclusion has been increased to $12,000 per recipient. Since 1997, the excludable amount has been indexed for inflation, but will only move in $1,000 increments. With gift-splitting, spouses may transfer $24,000 per recipient per year without gift tax even if one spouse owns all of the property. The consent of the spouse not owning property must be signified on the gift tax returns.
Also, an unlimited gift tax exclusion is allowed for amounts paid on behalf of a donee directly to an educational organization for tuition and to a health care provider for medical services.
For a gift in trust, each beneficiary is treated as a separate person for purposes of the exclusion. The annual exclusion is not available for gifts of future interests such as a remainder interest in a trust or life estate, except for gifts to minors in trust or under the Uniform Gift to Minors Act.
Gifts given within three years of death generally will not be included in the deceased donor’s estate. (The taxable portion of gifts would be included in the tax base for estate tax computations.) However, gifts with retained life estates, transfers effective at death, revocable transfers, transfers of general powers of appointment and transfers of life insurance will be included in the estate. The three year rule was retained for redemption of stock to pay estate taxes, special valuation of certain farm property, extension of time to pay estate tax, and for determining property subject to a lien for taxes.
Beginning in 2004, the gift tax exemption equivalent will remain at $1,000,000 even though the estate tax equivalent exemption continues to increase. In 2010, although estate taxes will be eliminated, gift taxes will remain in effect with a maximum rate of 35 percent and a $1,000,000 exemption equivalent amount.