Have a Tax Question? Ask a Tax Expert
As long as you have not used up your lifetime allowance ($5.43 million) you would not pay Gift Tax.
You would need to report the gift because it is more than the annual allowance ($14,000 to any one person). The Form 709 is used to report the gift.
You will be reducing your lifetime amount which assists your estate to avoid tax but the gift would not be taxable to you or your children.
If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.
By removing the $2mil from your estate it lowers the possible taxable amount. The $2mil is removed from your assets and not included when you pass away. Lifetime gifts that are complete (no powers or other control over the gifts are retained) are not included in the Gross Estate, this means your estate would possibly avoid tax if it is below the thresh hold when you pass away.
On the other hand, whatever exemption you use now for gifting will reduce the amount you can use for the estate tax.