A person can give a $10,000 gift per person each year, or a husband and wife together can give $20,000 per person that is tax-free. These gifts can be given to as many people as the owner or owners wish to include, but only property presently owned can be given. These are annual exclusions and can be given each year. If they are not given within the year, they are lost.

A husband and wife may make gifts separately or jointly. If a gift is made jointly or as a split gift, half is considered given by one and half by the other regardless of who owns the property. For example, a husband and wife with six children can give property valued at $20,000 to each child for a total of $120,000 per year. No gift or estate taxes would have to be paid by the parents or the children. Also, exclusions are allowed if someone's medical care is paid and if educational expenses are paid on someone's behalf.

The increase in the annual exclusions allows a family to transfer large amounts of property effectively to children. If rapidly appreciating property is given way, the appreciation would occur in the recipient's estate, thus reducing potential estate taxes on the donor's estate. However, if the property is sold, tax is owed on the difference between the basis or donor's cost and the market value. It may be better to transfer high-valued property with a low basis as part of the estate.

When property passes through an estate, it receives a new basis. With a new basis, taxes are owed only on the difference in the market value when sold and the market value when the property was transferred in the estate. Give careful consideration to selecting property to be transferred as a gift.

If property is transferred for less than full value or less than fair market value, the difference in the fair market value and the consideration paid is deemed a gift.

Tax-free gifts can be made using the annual exclusions and the unified credit. The unified credit can offset gift taxes or estate taxes. Any credit used to offset gift taxes directly reduces the credit that can be used to offset estate taxes. Under the present law, the maximum value of property that can be transferred using the tax credit is $225,000 in 1982; $275,000 in 1983; $325,000 in 1984; $400,000 in 1985; $500,000 in 1986; and $600,000 after 1986. Any amount can be transferred to a spouse tax-free.

Before 1982, gifts for more than the annual exclusions were taxed in the estate of the donor if he died within three years after making the gifts. Beginning in 1982, the three-year rule no longer exits for most property transferred. Exceptions to this include life insurance proceeds and transfers where the option to control the property has been maintained as powers of appointment, revocable transfers, irrevocable transfers if income payments are not specified, retained life estates, or transfers that become effective at death. Also, if a farm or closely held business qualified for special use valuation, if estate taxes are deferred, if stock is redeemed to pay estate tax, or if there is an estate tax lien, the estate will include gifts made within three years of death. Gifts that can be included in an estate because of the three-year rule are valued on the date of the gift, not the date of death.