@Ted: You do raise a good point about generational wealth; if it passes to heirs who can use it well, the money can do a great deal to build up a family into something truly powerful. On the other hand, it can also end up being squandered by mismanagement and greed by those same heirs. My take is this: at most, the estate tax in the US takes about 50% of the inherited wealth that gets passed on. If the heirs of a great fortune don’t have skill needed to turn $5 million (after the tax) back into $10 million, why would it be any easier for them to turn the original $10 million into $20 million?

@David: True, it is something of a lose-win situation. If you’re looking for more information on the gift tax and its rules, the post Evan has is a good start, as is this site: http://www.savewealth.com/planning/estate/taxes/ The nutshell version goes mostly like this: you can give up to $13,000 (in total value of gifts, not just money) per year to each recipient without having to pay any taxes. (Not counting gifts to spouses, charitable donations, and gifts used for medical gifts or tuition.) Above that amount, any gifts you give will eat into the $1 million gift tax exemption, the amount you can give away during your lifetime without paying the gift tax. When that exemption has been exhausted, your gift recipient will have to pay the gift taxes on the gift. (Of course, all this applies to years other than 2010; this year is weird, with gift and estate taxes being repealed for one year only.)

@Evolution of Wealth: Very true; there are plenty of ways to avoid the estate tax (or at least, greatly soften its blow) if you know what you’re doing, or have access to advisers who can point you in the right direction. One of the disadvantages of levying a tax on the very people who have the most resources to find loopholes (to say nothing of ensuring that the loopholes are there) is that they can do a very good job of avoiding the taxes. I’ll admit, the taxation of inherited IRAs seems pretty painful; taxing pretax values at estate tax rates is downright tough.

@Evan: Thanks for the link; it does a great job summing up the gift tax in a very concise manner. I do agree about the estate tax, as well; it’s awfully hard for those who are leaving fortunes in excess of one million dollars to garner much sympathy from the bulk of the public.

@Aaron: If I had thought about generational wealth when writing this article, I might have mentioned it, although, it’s such a tricky subject (as you mentioned, it has its good points and bad points, so I’d need another two paragraphs or so just to bring it up) that I’m not sure it would add much to the discussion. Plus, we covered it decently here in the comments, so it didn’t go completely amiss. Thanks for the comments, and I’m glad you think it can serve as a resource in the future!

David if you were looking for gift tax info:
http://www.myjourneytomillions.com/articles/gift-laws-taxes-simple/