Should We Tax Gifts the British Way?

Forsyth
(English Wikipedia)

Bruce Forsyth, the British TV icon who died last month, disliked the 40% U.K. inheritance tax. So he left everything to his wife tax free, thanks to the U.K. equivalent of our unlimited marital deduction. Wilnelia, his widow, will have the task of distributing some or most of Forsyth's £17-million estate to his numerous children and grandchildren.

And a quick glance at the U.K. inheritance tax rules suggests she can do it at little or no tax cost.

Instead of taxing gifts when made, the U.K. requires lifetime gifts to be added back into the estate taxable at the donor's death. Thanks to Forsyth's unused inheritance tax exemption and her own, Wilnelia can give or bequeath £650,000 without tax.

But she should be able to do better. Much better. The U.K. counts lifetime gifts as part of the donor's estate only if they are made within seven years of death. As a relatively young widow, Wilnelia presumably has time to parcel out millions of pounds tax free to Forsyth's descendants.

Even if Wilnelia should die within seven years of fulfilling Forsyth's estate plan, some tax might be saved. "Taper relief" reduces the tax rate on gifts made more than three years of death.

Should the U.S. adopt the British approach to taxing lifetime transfers of wealth? Or would it unduly favor those wealthy enough to give millions tax free?