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§ 8.2 FEDERAL GIFT TAXbut not more than $3 million, the estate and gift tax rate is 53 percent. For taxabletransfers of more than $3 million, the top estate and gift tax rate is 55 percent.To phase out the benefit of the graduated brackets and the unified credit(see below), the estate and gift tax is increased by 5 percent on cumulative taxabletransfers—in excess of $10 million but not in excess of the amount atwhich the average tax rate is 55 percent. 3Families with small concentrations of wealth are given tax relief. Throughthe availability of a credit known as the unified credit, estates of amounts up tocertain levels can pass free of federal estate and gift tax (see below).Additionally, small amounts of wealth can be transferred annually to otherindividuals free of gift tax. Through what is known as the annual (gift tax) exclusion,as much as $11,000 per individual may be transferred each year free of theunified estate and gift tax during a person’s lifetime (see below).Given the sizable tax liability associated with large estates, and the naturaltendency and desire on the part of individuals to pass as much of their familywealth as possible to the next generation, a great deal of attention has been paidto estate tax planning. Estate planning has developed as a means of minimizingor reducing the amount of transfer taxes incurred in passing on family wealth.§ 8.2 FEDERAL GIFT TAXFederal tax law imposes an excise tax on the value of an individual’s lifetimetransfers of property. 4 Not all transfers, however, are subject to the tax. Onlytransfers that constitute gifts fall within the ambit of the tax.A gift, in common parlance, is understood to be a present or donation. Frequentlyone makes a gift as an act or expression of love, affection, friendship, orrespect. The gift is generally understood to be gratuitous, and not for any considerationor remuneration. The term gift may have a different meaning for federalgift tax purposes, as contrasted with other federal tax contexts.(a) Definition of GiftThe term gift is not defined in the federal statutory tax law, although the IRS hasprovided guidance by construing the term. 5 A gift is defined as any transferwhereby property, or property rights, are gratuitously conferred on another. Theessential characteristics of a gift are:• Transfer of money, property, or property rights sufficient to vest legal orequitable title in the donee• Relinquishment of dominion and control over the gift property by the donor• Absence of full and adequate consideration for the transfer• No disclaimer or renunciation of the gift by the donee• Competence of the donor to make the gift3 IRC §§ 2001(c), 2502(a).4 See § 3.1.5 Reg. § 25.2511-1(c). 225