The federal gift and estate tax system is a unified system that taxes all transfers made by an individual. The gift tax is a tax on the right to transfer property during your lifetime. The estate tax is a tax on the right to transfer property at your death.

There are several key concepts that must be understood to effectively minimize the impact of estate taxes:
Transfers to Spouses (Unlimited Marital Deduction Rule): There is no federal gift or estate tax liability on transfers between spouses. The amount that can be transferred tax-free to a spouse is unlimited.

Annual Exclusion Rule (Gift Exclusion): Under current law, you can make gifts of up to $13,000 per year to any donee (whether or not the donee is your spouse) with no liability for federal gift or estate taxes. A husband and wife may transfer $26,000 to a single donee without the imposition of gift taxes. These amounts of $13,000 and $23,000 are now "indexed" and can be expected to increase in future years because of inflation.

Federal Exclusion: After excluding gifts that qualify for the annual exclusion, you can transfer an additional amount to non-spouses with no liability for federal estate or gift taxes. The gift tax exclusion amount is $1m and is assessed on gifts given throughout a lifetime in excess of the $13,000 annual gift exclusion. The estate tax exclusion amount was $3.5m in 2009 and unlimited in 2010. The amount of estate tax owed is determined by subtracting the exclusion amount from the full value of the estate and taxing the difference at the appropriate rate. In 2009, the top tax rate was 45%. In 2010, the top tax rate was 0%.

Other Taxes: In addition to federal estate and gift taxes, assets that you transfer may be subject to other taxes, such as the generation skipping transfer tax and capital gains tax.
To help minimize the impact of estate taxes, contact an estate planning attorney.