What's the Difference Between the Gift Tax and the Estate Tax?

The gift tax and the estate tax are closely connected — they're part of the same unified transfer tax system — but they apply at different times. The gift tax applies to transfers of property made during your lifetime when the total gifts to any one person exceed the annual exclusion ($18,000 per person in 2024). The estate tax applies to transfers of property at death that exceed the lifetime exemption amount ($13.61 million in 2024). Both the gift tax and the estate tax share a single lifetime exemption — taxable gifts you make during life reduce the amount that can pass estate-tax-free at death. The top rate for both taxes is 40%, and they use the same exemption because otherwise people could avoid the estate tax simply by giving everything away before they died.