Trusts, Estates & Gift Tax Basics

Unified system (2026)

Exclusion $15 million per person (permanent, indexed from 2027); top rate 40%.

Gift tax

• Annual exclusion $19,000 per donee — present interests only; gift splitting doubles it.
• Direct tuition and medical payments: unlimited.
• Marital (US-citizen spouse) and charitable: unlimited. Non-citizen spouse: $194,000.
• Form 709 due April 15; file even if no tax (splitting, future interests).
• Donee takes donor's basis.

Estate tax

• Gross estate at fair market value; deductions: debts, expenses, marital, charitable.
• Alternate valuation: 6 months; must lower both estate and tax.
• Form 706: 9 months after death. Portability needs a timely 706.
• Heirs: stepped-up basis.

Fiduciary income tax

• Grantor trust: grantor taxed. Simple: distribute all income ($300 exemption). Complex: may accumulate ($100). Estate: $600.
• Distributable net income (DNI): caps distribution deduction and beneficiary income; preserves character.
• Form 1041 due April 15; compressed brackets; 65-day rule.

Exam traps

• The exclusion is unified: taxable lifetime gifts use up the amount available at death.
• Life insurance owned by the decedent is in the gross estate, even though the proceeds are free of income tax.
• Gifts made within 3 years of death generally aren't added back — except transfers of life insurance and gift tax paid.
• Income in respect of a decedent (such as unpaid salary or traditional individual retirement account (IRA) balances) gets no stepped-up basis.