It’s the unified estate and gift tax, estates and gifts are linked.

You can give up to $18k per year to an individual without it having any tax effect. You can also gift split, meaning a husband and a wife can each give $18k to the same individual before there are any tax consequences.

When you give over $18k, the amounts over $18 k are subject to tax. However there is a lifetime exemption. Currently the exemption is about $13m.

So, let’s say you are wealthy and give out gifts of $20m to 10 people over a period of years. $18k per person per year is exempt. The remaining is subject to tax. However the tax on the first $13m is exempt. And you owe tax on the remaining $7m.

It’s a lifetime exemption, so if after those $20m gifts you die and leave $20m to your kids, your estate would owe tax on the $20m.

It can get complex. There are mandatory filings you gave to do each year you give gifts, and the filings are cumulative, so the govt can trace your gifts and track how much of your lifetime exemption you use.

Kind of dry kind of boring and out of most peoples dreams because a relatively low number of people have $13m net worth’s, and those who do hire Cracker Jack estate planners who can minimize the tax burden.