2.5 Net Estate Tax

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

2.5 Net Estate Tax

The net estate is increased by gifts made by the decedent. Any gifts made by the decedent after 1976 that are not includable in the gross estate are added to the taxable estate.³⁶ The amount "added back" is the date-of-gift value of the gift, less any applicable gift tax exclusion, marital deduction, and charitable deduction. This is termed the "adjusted taxable gift."³⁷ The adding back is required because of the unification of the estate and gift taxes.

The federal estate tax is then computed.³⁸ The rate schedule is shown in Appendix A at the end of this chapter. The tax is then reduced by the gift tax previously paid on the "added-back" gifts.³⁹ Previously, the net effect of adding back the post-1976 gifts was to increase the estate tax owed on the estate because of the progressive nature of the estate tax rates. The corresponding deduction for the gift tax that was payable on the added-back gifts is allowed to give proper credit for the tax paid on the earlier gifts. Today's higher estate tax exemption precludes any estate tax at the lower rates. Thus, when an estate tax is owed, it is at a flat tax...