[KZeillmann]

Then why not tax everyone when they pass money/assets onto their kids? Why is there an arbitrary ~$5.1 million cutoff?

(Not that I have anywhere near that much money, but it's the principle)

[bufordsharkley]

Taxing everyone would be the "correct" solution, but it's more pragmatic/politically expedient to allow a $5mil exemption.

[kllrnohj]

There's always a cutoff just due to practicality. If you give a friend $5 probably neither of you filed taxes for that. If you give a friend $10m, well, the IRS will probably notice that one.

(in the case of a gift tax the cutoff is $14k and yes it applies to your children, see: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Emplo... )