Anyone is allowed to make non-taxable gifts of $11,000 (or less) per year per person.  For a transfer to qualify as a gift, the person who makes the transfer (donor) may not receive any value in return.     Property does not have to be given to another outright in order to qualify as a gift; giving someone limited rights to property may be a gift. Any gift over the $11,000 annual exclusion amount is taxable. Thus, an estate may not avoid death taxes by making gifts of assets prior to the decedent's death.

Although a person generally can make non-taxable gifts prior to death, gifts above certain will be taxed. The lifetime limit, known as the "unified credit," for 2002 is $1,000,000 - See table below for rate schedule. Once the total amount of lifetime gifts reaches this amount, gift taxes are incurred. It is important to note that gifts and estates are taxed at the same rate. This rate begins at 41%, and the highest rate is currently 50%.

A federal gift tax return must be filed whenever a gift over $11,000 is made. Different rules apply when a gift to another is considered a "future interest," which means that the interest does not mature until some future date. When a gift of a future interest is made, the value of the entire gift must be reflected on the annual gift tax return. This can be detrimental to the donors because such future interests can be created inadvertently or through mistake, such as improperly drafted custodial accounts for minors or the use of certain types of trusts. In addition, a person can avoid gift tax consequences (through a deduction) by making a gift to a spouse or charity.

• The Federal Gift Tax is set forth at  26 U.S.C §2501

• The Taxable Gifts is set forth at 26 U.S.C. §2503

• The Unified Credit Against Gift Tax is set forth at 26 U.S.C. §2505