A married couple's children expect to inherit a multi-million-dollar estate. Instead, the IRS sends a substantial estate tax bill plus a separate GST tax bill. Every dollar traces back to the same failure: not understanding how the unified transfer tax system fits together.
NOTE: OBBBA permanence. The $15,000,000 estate, gift, and GST exemption is now permanent under OBBBA. Before OBBBA, the Tax Cuts and Jobs Act (TCJA), which doubled the exemption in 2017 to keep large wealth transfers predictable and to defuse the political fight over the estate tax, was scheduled to sunset to roughly $7,000,000 on January 1, 2026. That cliff is gone. The planning implication: lifetime gifting urgency dropped, but the bypass trust still has value for shifting future appreciation outside the survivor's estate.
Congress wants to tax the full lifetime transfer of wealth, but it does not want to double-count the same dollar. The unified system solves that by giving every taxpayer one bucket that covers both lifetime gifts and the estate at death.
Common mistakes
- Confusing annual exclusion with lifetime exemption. Every gift passes through the annual exclusion first. Only the excess becomes a taxable gift that then passes through the lifetime exemption. Subtracting the lifetime exemption directly from the gift without first applying the annual exclusion double-counts the protection.
- Omitting adjusted taxable gifts. Candidates forget to add post-1976 gifts back to the taxable estate. This is the most common computational error on estate tax questions.
- TRAP: A lower estate tax figure usually means you forgot the gift add-back. Include adjusted taxable gifts before computing tentative tax.
Bottom line
- The gift and estate tax share one unified $15,000,000 exemption (2026, made permanent by OBBBA).
- Annual exclusion is $19,000 per donee per year; gift-splitting doubles it to $38,000 but requires both spouses to file Form 709.
- GST tax is a flat 40% on transfers to skip persons, with a separate $15,000,000 exemption that is not portable and is allocated automatically to lifetime direct skips and GST-trust gifts unless the transferor elects out.
- Estate sequence: gross estate minus deductions, plus adjusted taxable gifts, minus the unified credit. The gifts are added back for bracket integrity, not to double-tax.
Exam shortcut
On taxable estate calculations, build step-by-step: gross estate minus deductions = taxable estate, plus adjusted taxable gifts = tentative base, compute tentative tax, subtract unified credit, subtract gift tax paid. Write out each step even under time pressure, skipping one is the top source of wrong answers. For GST, always check whether any children predeceased the transferor before concluding a grandchild is a skip person.
The full lesson (about 6,179 words, 41 min read) adds 2 worked examples, all 12 common mistakes, a self-check, free in the app.
Learning objectives
- G.57
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