Who is subject to estate and gift taxation?

For purposes of estate and gift tax the jurisdictional bases are citizenship or residence, and the location of the property. The estate tax reaches all property owned by a citizen or resident of the United States without regard to its location. Similarly, the gift tax reaches all property transferred by a citizen or resident. However, in the case of nonresident aliens, only property located in the United States is subject to the federal estate tax. Gift tax exposure depends upon location of the property within the United States.

Generally, the estate of the decedent pays estate taxes and the person receiving property is not taxed. For the purposes of gift tax, the person who makes the gift is the one who is responsible for paying any gift tax that may be due and reporting the gift to the IRS on a gift tax return. For the recipient of the gift there won’t be any immediate income tax consequences since the gift won’t be included as part of the recipient’s taxable income. However, the recipient may incur capital gains tax when the gifted property is later sold because of the income tax basis that the recipient will receive in the gifted property. Additionally, any estate or gift tax liability that is incurred by the donor can be collected through assessing against the inherited or gifted property in the hands of the recipient of the gift or inheritance. The Executor or Trustee can also find themselves personally liable for unpaid estate and gift taxes.