Search Penny Hill Press

Wednesday, February 16, 2011

Federal Estate, Gift, and Generation-Skipping Taxes: A Description of Current Law

John R. Luckey
Legislative Attorney

This report contains an explanation of the major provisions of the federal estate, gift, and generation-skipping transfer taxes as they apply to transfers in 2011. The discussion provides basic principles to be applied in the computation of these three transfer taxes.

The federal estate and generation-skipping taxes were resurrected by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) after a hiatus of one year (2010). This act also provided elective options for estates of those who died in 2010.

The federal estate tax is computed through a series of adjustments and modifications of a tax base known as the “gross estate.” Certain allowable deductions reduce the gross estate to the “taxable estate,” to which is then added the total of all lifetime taxable gifts made by the decedent. The tax rates are applied and, after reduction for certain allowable credits, the amount of tax owed by the estate is reached. The top rate for 2011 is 35% and the exclusion amount is $5,000,000.

This discussion divides the federal gift tax into two components: the taxable gift and the gift tax computation. The federal gift tax is imposed on lifetime gifts of property. The tax depends in large part upon the fundamental element—the value of the “taxable gift.” The taxable gift is determined by reducing the gross value of the gift by the available deductions and exclusions. The gift tax liability determined on the basis of the donor’s taxable gifts may be reduced by the unified lifetime credit (which covers the excludible amount of $5,000,000). The annual per donee exclusion is $13,000 ($26,000 for joint gifts) for 2011. The top rate for 2011 is 35%.

The purpose of the generation-skipping transfer tax is to close a perceived loophole in the estate and gift tax system where property could be transferred to successive generations without intervening estate or gift tax consequences. There are two basic forms of generation-skipping transfers; the indirect skip, where the generation one level below the decedent receives some beneficial interest in the property before the property passes to the generation two or more levels below, and the direct skip, where the property passes directly to the generation two or more levels below the decedent. This discussion describes the tax on these types of transfers, its computation and implementation, and use of such concepts as generation assignment and inclusion ratios. The flat rate for this tax in 2011 is 35%.

Date of Report: January 19, 2011
Number of Pages: 14
Order Number: 95-416
Price: $29.95

Follow us on TWITTER at or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail
Penny Hill Press  or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.