One sure way to avoid any confusion with the laws when you die is don't. But since that would make for a short page, here is some more information.
Then, even if a gift tax return has to be filed, there isn't necessarily a tax liability. The 'unified credit' is an exclusion amount which you use up against any gift tax that you would have had to pay. This credit is a lifetime amount (periodically adjusted) that is used against your gift as well as your estate tax liability.
In 2002, the unified credit increased to $1 million and stays that way for gift tax purposes. The gift tax rate will decrease until its highest rate will equal the highest tax rate (35%) in 2010.
The estate tax rate will decrease until 45% in 2009.
The estate/generation-skipping transfer tax will decrease by increasing the transfer tax exemption. For 2002 the exemption was $1 million, it is $1,120,000 for 2003; increasing until $3.5 million in 2009. Both these taxes are then eliminated in 2010.
But then, that's the year this whole tax package is due to expire, so technically the estate and gift taxes could then revert to the original laws if nothing else is done.
And in 2010, the basis of inherited property changes. Currently your basis is the fair market value upon date of death (or six months later)...that's good. For example, a stock bought at $1.00/share years ago which you inherit, will take on the current price (let's say $100/share), so if you sell it, the gain if any is minor. But if you had to consider the basis of the decedent, you're looking at $99 gain per share to report. Well, as of 2010, any property over $1.3 million will take the decedent's basis (over $3 million for property to a surviving spouse). Inherited property under this amount will retain the 'stepped-up' basis to fair market value.
There is also a restriction of the inherited basis of property from a gift transferred to the decedent three years prior to death. You can research that one yourself.
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