Yes, I almost corrected that one too... but that part of her argument is valid. She's trying to say that by giving the gift at FMV of 1,000,000 the giftor (eventual decedent) has deducted it from the exemtion equivalent (from what will be exempt
from estate tax at death)
She DOES understand that the federal
estate tax system is a UNIFIED gift and estate tax system. This is a system of transfer taxes ... (Either a gift during life, or the last gift, - the transfer of the estate, at death).
So, when someone does give a gift of over that 14,000 per year that's exempted, they are required to fill out a gift tax form
, (although no tax is owed at that point), so that those lifetime gifts can be deducted from whatever is left in the estate, to see how much of that credit is left at death. ... Its a unified gift and estate transfer tax.
So, for example, (and we'll leave the linking and portability issue out of this to make it simple) the exemption equivalent (the amount I can pass without having any estate tax) is $ 5,250,000. ... And lets say that I gifted $3,250,000 diring my life and died this year, and of course filled out the gift tax forms as I did, so that it could be tracked (accumulated against that future credit) ... That means that my estate can still be worth 2,000,000 before the next dollar has any estate tax.
She understands that part. That's why she said it's worth 2 million. What she should have said is "worth EFFECTIVELY 2 million," ... becuase giving that money away (because one must fill out those gift tax formsfor future reference) HAS reduced the credit that will be applied at death.
BUT where her logic is flawed, is in not understanding the the eventual capital gain on an inherited
(which MAY have been well below the levels we're talking about here anyway) when sold IF SOLD AT ALL (an income
tax) is not interchangable with the
estate tax, a transfer tax.
How the transfer tax effects everything from tax policy
, to economic impact, to fiscal policy ... is much more predictable than (and has completely different effects from) some POSSIBLE, potential future gain on sale of an asset.
The relationship she sees is spurious. They are related in that they only (MAY only) affect the same person.
Just because they sell more ice cream in Chicago in the summertime ... and crime goes up in the summertime ... doesn't mean the two are related. ... and it certainly doesn't mean that eating ice cream causes crime.
(That's the first definition/ description I ever heard regarding spurious relationships ... something that's very important when doing any real research to establish causation)
She assigning the setp up in basis and the estate tax a relationship that isn't there.