Avoiding Federal Estate Tax on Gift Tax Liabilities Incurred Within Three Years Before Death

The federal wealth transfer tax system generally taxes all gratuitous transfers in the same manner without regard to whether a particular transfer is made during the transferor's lifetime or upon the transferor's death. A fundamental difference between these two taxes is that the gift tax is calculated on a "tax-exclusive" basis (i.e. on the value of property actually transferred) while the estate tax is calculated on a "tax-inclusive" basis (i.e. on the value of property actually transferred plus any amount used to pay the tax). This difference in the calculation of the gift and estate taxes can be significant.

THE ABOVE ADVICE WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY YOU FOR THE PURPOSE OF (1) AVOIDING ANY PENALTY THAT MAY BE IMPOSED BY THE INTERNAL REVENUE SERVICE OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN.  IF YOU DESIRE SUCH AN OPINION, PLEASE SO ADVISE.