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Estate Planning Center |
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Estate
Tax Repeal
On June 7, 2001 President Bush signed into law a $1.35 billion tax-cut package called the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The new law contains many elements of individual tax relief including repeal of the estate tax. Impact on Estate Tax First, EGTRRA does not eliminate the death tax (officially known as the Estate Tax) immediately. Instead, the tax is phased out over a 9 year period finally being entirely eliminated Jan. 1, 2010. EGTRRA reduces the highest tax bracket to 50% (currently 55%) as of Jan. 1, 2002. It then reduces the highest bracket in steps each year until 2007 when it hits 45%. Also, the amount exempt from this tax is increased to $1 million (currently $675,000) in 2002, $1.5 million in 2004, $2 million in 2006, and $3.5 million in 2009. What About the Gift Tax It is surprising to most people that the government taxes gifts that exceed $10,000 per person per year (called the Gift Tax). The Gift Tax is not repealed although the gift exemption will increase to $1 million in 2002. Capital Gains Tax Under current law, when a person dies, most of the decedent's assets receive a "step-up" in tax basis to the fair market value of the asset at the time of death. This means that the decedent’s potential capital gains tax is not passed on to the heirs. Under EGTRRA, only assets amounting to the first $1,300,000 of the decedent's estate would receive this step up. Assets in excess of this limit would retain the same tax basis as existed prior to the death of the decedent and would pass to the heirs(often referred to as "carry-over basis"). In the case of a surviving spouse, this limit on step up basis assets would be increased an additional $3,000,000. Sunset Provision Interestingly, this law automatically becomes ineffective Jan. 1, 2011. So, unless a future Congress affirmatively takes action, the estate tax will be repealed Jan.1, 2010, and one year later will automatically reappear with a $1 million exemption! What Should I Do with My Estate Planning The estate tax remains in effect until 2010. No one can be sure that they will outlive the estate tax. Therefore, the wisest course of action would be to continue to plan your estate with the goal of reducing or eliminating estate tax. It is simply premature to plan as if the estate tax does not exist.
The
Law Office of Raymond B. McFalone
Raymond
B. McFalone
Email: ray@raymcfalone.com
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