This paper examines the federal estate and gift tax laws governing property transfers in the United States, with a focus on changes introduced by the 2010 Tax Relief Act. It explains the legal definitions of estates and gifts, outlines how exclusions and exceptions work under the Internal Revenue Code, and analyzes the broad implications of recent legislative changes. The paper weighs the advantages of the Act — including extended capital gains treatment, payroll tax cuts, and benefits for low-income households — against its drawbacks, such as increased childcare credit spending and new depreciation requirements, ultimately concluding that the Act's benefits outweigh its costs.
Estate taxes and gift taxes influence individuals throughout the United States. The federal government imposes laws that govern both gifts and estates, and while there has been considerable uncertainty surrounding these taxes, much of that uncertainty has recently been resolved. This reprieve is, however, temporary, since changes in government tend to produce new laws. In 2013, expanded exclusions for estate and gift taxes gave couples additional time to plan. Tax cuts by the Bush administration had some impact, but the exclusions introduced under the Obama administration provided relief to families and individuals alike. The future of estate and gift taxation in America appears relatively stable, though a degree of uncertainty persists with every change in administration (Gale & Potter, 2002). A sound planning process ensures better practices for years to come.
According to Baker, Bloom, and Davis (2013), understanding estate law requires first understanding the meaning and importance of an estate. An estate represents the value a person holds in life and in death — essentially, one's net worth. Upon death, or even while still living, an estate encompasses a person's legal rights, interests, and other benefits accrued to that estate. However, this framework does not apply in cases where an individual is bankrupt or owes creditors; in such situations, creditors receive compensation before the estate changes hands. The federal government has established laws that govern estate management across the United States.
Federal government authority includes the power to impose estate taxes. This form of tax is levied on the right of individuals to transfer property to others upon death, and it requires accounting for everything a person owns or has an interest in at the time of death. Recent congressional action points toward a different future for estate and gift taxation. Legislative changes in 2013 have had a notable impact on a wide range of individuals. This last-minute legislation provided high exemption rates, benefited spouses, and reduced tax rates on both gifts and estates (Baker et al., 2013). At the same time, tax exemptions did not deliver substantial benefits to wealthy families. This legislation was also significant in that it helped prevent the country from falling off the so-called "fiscal cliff."
Gift tax is a form of tax imposed when a person transfers property to another person without receiving full value in return. Gifts represent one source of revenue for the federal government. When considering such transfers, there is both a direct and an indirect dimension. Direct consideration refers to the availability of full interest in the property, while indirect consideration represents its absence. In cases where intangible or tangible property is transferred, the federal government imposes a tax on the donor (Stephen, 2009). Properties subject to the gift tax include stocks, real estate, cash, and other assets.
Exceptions arise in situations where the person transferring the property retains some interest in it. Retaining such interest by the transferor delays both the transfer process and the associated tax obligation. A defining feature of gift transfers is that the donor does not expect to receive anything of equal value in return. In some instances, a donor does receive something back, but at a value lower than the actual value of the property transferred (Stephen, 2009). In the United States, the gift tax constitutes an internal source of federal revenue, codified under Section 2501 of the Internal Revenue Code, governed by Chapter 12 of the Code under Subtitle B. Ultimately, the act of gift-giving reflects affection, respect, charity, and admiration from the donor to the beneficiary.
The 2010 Tax Relief Act introduced a wide range of advantages for individuals and business entities alike. The Act positively affected individual income taxes by reducing applicable tax rates, and it extended favorable treatment for dividends and capital gains for business owners. It also included a permanent provision of Alternative Minimum Tax (AMT) relief for individuals. The federal government further provided estate and gift tax benefits, while older employees gained improved retirement savings thresholds. Families with children benefited from child tax credit provisions, and the Act included educational incentives and individual tax extensions. Additional benefits encompassed reductions in business tax, energy incentives, and provisions related to the Affordable Care Act.
The Act extended dividend and capital gains treatment from the previous administration and provided considerable tax cuts for individuals and businesses originally established under President Bush. The legislation also introduced a one-year payroll tax cut for American workers (Tax Relief Act, 2010). Among its positive economic effects was a reduction in unemployment rates. Households with special needs gained assurance that their taxes would not increase in the near future. The Act also extended the refundability threshold on the child tax credit, a provision that directly benefited low-income households.
Further advantages included an extension of EGTRRA sunset provisions, a reinstatement of the broader tax framework, and special rules for descendants of those who had recently died. The Act extended the period during which individuals could make claims concerning certain estates, and it allowed for the inclusion of applicable credit amounts and tax exemptions for descendants. The Act also extended the Earned Income Tax Credit for two years, allowing the American public to take advantage of tax credits and increased income limits. Small businesses benefited from extensions tied to the Credit Act of 2010 (Tax Relief Act, 2010).
"Benefits of the Act for individuals and businesses"
"Drawbacks and negative impacts of the Act"
Stephen, J. (2009). Federal estate and gift taxes: A series of issue summaries from the Congressional Budget Office. Retrieved from http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/108xx/doc10841/12-18-estate_gifttax_brief.pdf
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010: Regulated Investment Company Modernization Act of 2010. ECONBIZ. Retrieved from
You’re 71% through this paper. Sign up to read the remaining 2 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.