Gift Tax Glossary
Definitions of key terms used in gift tax planning, estate planning, and wealth transfer.
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).
Adequate Consideration
A transfer made for full fair market value. Transfers for adequate consideration are not gifts and are not subject to gift tax. Common in business transactions and property sales between family members.
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.
Charitable Remainder Trust (CRT)
An irrevocable trust that provides income to the donor or other beneficiaries for a period of time, with the remainder going to charity. Contributions qualify for a partial charitable deduction.
Clawback
The theoretical risk that gifts made under a higher exemption could be retroactively taxed if the exemption decreases. The IRS anti-clawback rule (Treasury Decision 9884) protects against this for gifts made under the TCJA's higher exemption.
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.
Donee
The person who receives a gift. The donee does not pay gift tax on the received gift.
Donor
The person who makes a gift. The donor is responsible for paying any gift tax owed.
Donor-Advised Fund (DAF)
A charitable giving vehicle where the donor makes an irrevocable contribution, receives an immediate tax deduction, and then recommends grants to charities over time. Not subject to gift tax.
Dynasty Trust
A long-term irrevocable trust designed to pass wealth through multiple generations while minimizing estate, gift, and generation-skipping transfer taxes. Popular in states like Nevada, South Dakota, and Delaware that have abolished the rule against perpetuities.
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.
Family Limited Partnership (FLP)
A partnership among family members used to consolidate and manage family assets. Gifts of limited partnership interests may qualify for valuation discounts (lack of marketability and lack of control), reducing the gift tax value.
Foreign Gift
A gift received by a U.S. person from a nonresident alien individual, foreign corporation, foreign partnership, or foreign estate. Foreign gifts exceeding $100,000 (from individuals/estates) or $19,093 (from entities) must be reported on Form 3520.
Form 3520
IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. An information return (not a tax return) required when receiving large gifts from foreign persons. Penalties for non-filing can reach 25% of the gift amount.
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 Letter
A written statement from the donor confirming that a transfer is a gift with no expectation of repayment. Often required by mortgage lenders when gift funds are used for a home down payment.
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).
Gift Tax Return
See Form 709. The federal tax return filed by donors to report taxable gifts, elect gift splitting, or report certain trust transactions. Due April 15 (with extensions available).
Grantor Trust
A trust where the grantor retains certain powers or benefits, causing the trust income to be taxed to the grantor rather than the trust. Intentionally Defective Grantor Trusts (IDGTs) are a common estate planning tool.
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.
IDGT (Intentionally Defective Grantor Trust)
An irrevocable trust that is 'defective' for income tax purposes (income taxed to the grantor) but effective for estate tax purposes (assets removed from the estate). Sales to an IDGT are not taxable events.
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.
Incomplete Gift
A transfer where the donor retains sufficient control or power over the property that it is not considered a completed gift for gift tax purposes. Incomplete gifts are not subject to gift tax until they become complete.
Inter Vivos Trust
A trust created during the grantor's lifetime (as opposed to a testamentary trust created by a will). Irrevocable inter vivos trusts are commonly used in gift tax planning.
Lapse
The expiration of a power of withdrawal (such as a Crummey power) without exercise. Annual lapses exceeding the greater of $5,000 or 5% of trust assets may be treated as a taxable gift by the power holder.
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.
Nonresident Alien (NRA)
An individual who is neither a U.S. citizen nor a U.S. resident for tax purposes. NRAs are subject to U.S. gift tax only on gifts of tangible property located in the United States — not on gifts of cash or intangible property.
Portability
The ability of a surviving spouse to use the deceased spouse's unused estate and gift tax exemption (DSUE amount). Portability must be elected on a timely filed estate tax return (Form 706).
Power of Appointment
The authority given to a person (the holder) to direct the distribution of trust property. A general power of appointment can cause the trust assets to be included in the holder's taxable estate.
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.
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.
Qualified Domestic Trust (QDOT)
A trust that allows a surviving non-citizen spouse to benefit from the marital deduction. Without a QDOT, transfers to non-citizen spouses exceeding the annual exclusion ($185,000 in 2025) are subject to gift tax.
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.
Remainder Interest
The right to receive property after the termination of a prior interest (such as a life estate or trust term). Gifts of remainder interests are valued using IRS actuarial tables and the Section 7520 rate.
Section 7520 Rate
An IRS-published interest rate (updated monthly) used to value annuities, life estates, and remainder interests for gift and estate tax purposes. A lower 7520 rate generally favors GRATs and QPRTs.
SLAT (Spousal Lifetime Access Trust)
An irrevocable trust where one spouse is the grantor and the other spouse is a beneficiary. SLATs allow couples to use their lifetime exemption while maintaining indirect access to the gifted assets through the beneficiary spouse.
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.
Sunset (TCJA)
The scheduled expiration of the Tax Cuts and Jobs Act provisions on January 1, 2026. If Congress does not act, the lifetime exemption will revert to approximately $7 million per person (adjusted for inflation), roughly half the current level.
Superfunding (529 Plan)
A special election that allows a donor to contribute up to five years' worth of annual exclusions to a 529 plan in a single year ($95,000 per beneficiary, or $190,000 for married couples electing gift splitting in 2025).
Tangible Property
Physical property that can be touched, such as real estate, jewelry, art, and vehicles. For gift tax purposes, the distinction between tangible and intangible property is important for nonresident alien donors.
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.
Valuation Discount
A reduction in the fair market value of gifted property based on factors like lack of marketability or lack of control. Commonly applied to gifts of minority interests in family businesses or real estate partnerships.