Lurking in the background is Uncle Sam, who is licking his lips at devouring a chunk of your estate. Last week, I presented ways to avoid probate when you transfer your assets at death. By making annual gifts, the brother is lowering the value of his estate. The federal estate tax is a tax levied on all property owned by the decedent at death.
Tax basis is usually the cost of the property plus improvements and less any depreciation.
With community property, even thought 50 percent passes outright to the surviving spouse, both halves of the community property receive the new stepped-up basis upon the death of the first spouse. The unified credit may be applied toward property left to any donee, either outright or in trust. Often, a married couple uses their unified credits to create two separate trusts. Upon the surviving spouse's death, the children then become beneficiaries of the trust. The unified credit plays a major role in estate planning because there is no estate tax for estates valued at less than or equal to the unified credit.