Gift Tax Glossary
Definitions of key terms used in gift tax planning, estate planning, and wealth transfer.
Annual Exclusion
The amount you can give to any one person in a calendar year without triggering gift tax reporting requirements. For 2025, this is $19,000 per recipient.
Anti-Clawback Rule
An IRS regulation confirming that gifts made under the higher TCJA lifetime exemption will not be retroactively taxed if the exemption decreases in the future.
Applicable Credit Amount
The tax credit that effectively exempts a certain amount of taxable gifts from gift tax. Also known as the unified credit.
Basis
The value used to determine gain or loss when property is sold. For gifted property, the recipient generally takes the donor's basis (carryover basis).
Carryover Basis
When property is gifted, the recipient inherits the donor's original cost basis, unlike inherited property which receives a stepped-up basis.
Charitable Deduction
A deduction for gifts made to qualified charitable organizations, which are exempt from gift tax.
Completed Gift
A transfer where the donor has given up all dominion and control over the property. Only completed gifts are subject to gift tax.
Crummey Power
A provision in an irrevocable trust that gives beneficiaries a temporary right to withdraw contributions, qualifying the transfer for the annual exclusion.
Donor
The person who makes a gift. The donor is responsible for paying any gift tax owed.
Donee
The person who receives a gift. The donee does not pay gift tax on the received gift.
Estate Tax
A tax on the transfer of property at death. The estate tax exemption is unified with the gift tax exemption.
Fair Market Value (FMV)
The price at which property would change hands between a willing buyer and willing seller, both having reasonable knowledge of relevant facts.
Form 709
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Filed by donors who make taxable gifts or elect gift splitting.
Future Interest
A gift where the recipient cannot immediately use, possess, or enjoy the property. Future interest gifts do not qualify for the annual exclusion.
Generation-Skipping Transfer Tax (GSTT)
An additional tax on transfers to beneficiaries who are two or more generations below the donor (e.g., grandchildren).
Gift Splitting
An election by married couples to treat a gift made by one spouse as if each spouse made half. Requires both spouses to file Form 709.
Gift Tax
A federal tax imposed on the transfer of property or money to another person for less than full consideration (fair market value).
GRAT (Grantor Retained Annuity Trust)
An irrevocable trust where the grantor retains an annuity interest for a term of years. Any appreciation above the IRS hurdle rate passes to beneficiaries gift-tax free.
ILIT (Irrevocable Life Insurance Trust)
A trust designed to own life insurance policies outside the grantor's estate, removing the death benefit from the taxable estate.
Lifetime Exemption
The total amount an individual can transfer during life and at death before owing gift or estate tax. Also called the unified credit or applicable exclusion amount.
Marital Deduction
An unlimited deduction for gifts between U.S. citizen spouses, meaning spousal gifts are never subject to gift tax.
Net Gift
An arrangement where the donee agrees to pay the gift tax, reducing the value of the gift for tax purposes.
Present Interest
A gift that gives the recipient an immediate right to use, possess, or enjoy the property. Required for the annual exclusion to apply.
Qualified Transfer
A payment made directly to an educational institution for tuition or to a medical provider for medical expenses. These are exempt from gift tax.
QPRT (Qualified Personal Residence Trust)
A trust that allows you to transfer your home to beneficiaries at a reduced gift tax value while retaining the right to live in it for a term of years.
Stepped-Up Basis
When property is inherited (not gifted), the recipient's basis is 'stepped up' to fair market value at the date of death, potentially eliminating capital gains tax.
Taxable Gift
The amount of a gift that exceeds the annual exclusion and is not otherwise exempt. Taxable gifts reduce the donor's remaining lifetime exemption.
TCJA (Tax Cuts and Jobs Act)
The 2017 tax reform law that roughly doubled the lifetime exemption. Key provisions are scheduled to sunset.
Unified Credit
The tax credit that offsets gift and estate tax on transfers up to the lifetime exemption amount. 'Unified' because it covers both gift and estate tax.
529 Plan
A tax-advantaged education savings plan. Contributions are considered gifts but can be spread over 5 years for annual exclusion purposes (5-year election).