On June 7, 2001, the Economic Growth and Tax Relief Reconciliation Act was signed by President Bush, bringing many changes over the next decade. Effective January 1, 2002, federal estate taxes will be steadily reduced and eventually abolished in 2010. Without further congressional action, however, the law as it existed in 2001 comes back into effect for 2011 and thereafter.

Estate Tax Presentation service
The purpose of this service is to collect information regarding your assets and liabilities in order to determine estate tax liability and if there is sufficient liquidity to pay estate taxes. The Estate Tax Presentation reflects the recent changes in estate tax law and also illustrates the effect of future growth and inflation on your estate.

Federal Estate Tax Update 2002-2010

The Economic Growth and Tax Relief Reconciliation Act of 2001 includes the repeal of federal estate taxes for people dying after December 31, 2009. Between January 1, 2002 and December 31, 2009, the current federal estate tax will gradually decrease as shown in the following table.

It's very important to be aware that this repeal is temporary; the entire law "sunsets" (expires) after December 31, 2010. This means that the provisions of this 2001 Tax Act will no longer be effective on January 1, 2011 and the tax structure as it existed in 2001 will take effect again (in 2011, Federal estate tax will be assessed on property in excess of $1 million at the top rate of 55%.)

Federal Gift Tax
Congress did not repeal the federal gift tax, although it raised the lifetime gift tax exemption (the amount that may be passed to heirs without tax) to $1 million, effective in 2002. This means that a person could make a total of $1 million of gifts over his/her lifetime before owing any federal gift tax. Gifts of more than $1 million WILL be taxed, regardless of the exemption for transfers at death. Beginning in 2010, the gift tax rate will equal the highest individual income tax rate (currently 39.6% - scheduled to decrease to 35% in 2006 and later). For example, a gift of $1,500,000 in 2006 will incur gift tax of $175,000 (35% of $500,000).

Basis of Inherited Property
"Step-up in basis" will continue until December 31, 2009. The "basis" of a piece of property is generally the purchase price of that property and is used to calculate taxable gain when property is sold. The greater the increase in value of property, the greater the taxable gain when sold. A "step-up in basis" means that the basis of inherited property increases to the value of the property on the date of death.

For the year 2010, "step-up" will be replaced by "carry-over basis" rules. Carry-over basis means the basis of inherited property remains the same as it was for the deceased owner; which potentially increases the amount of gain (and tax) when the property is sold. When property is inherited, the heir can choose to take a "step-up" in basis for only $1.3 million of the property. For any amount inherited over $1.3 million, the heir's basis will be the smaller of the deceased owner's basis or the date-of-death-market value. The basis of property passing to a surviving spouse could be increased by an additional $3 million.

Basis of property given to the decedent by someone other than his/her spouse within 3 years of death could not be increased.

Remember, in 2011, step-up in basis generally resumes as it existed prior to this Act, because all provisions of this tax act expire after December 31, 2010.

State Death Tax
Currently, there is a credit against federal estate taxes for death taxes paid to a state. This State death tax credit will be reduced from current levels as follows:

Beginning January 1, 2005, a deduction will be allowed for death taxes actually paid to any State or to the District of Columbia.

The material found on this site is for general information only. Information included on this site dealing with federal estate tax issues may not be the best solution to your situation. You should consult your attorney for personal advice.

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