Economic Growth and Tax Relief Reconciliation Act of 2001: Planning for estate tax changes

PRACTITIONER'S COMMENT

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which was enacted by Congress as PL. No. 107-16 and signed into law by President Bush on June 7, 2001, will have a significant impact on estate and wealth transfer tax planning over the next several years. Because EGTRRA contains a "sunset" provision, it will not apply to years beginning after December 31, 2010. Consequently, the tax laws as they existed before the passage of the Act will be reinstated in 2011 unless future legislation makes the terms of the Act permanent. This uncertainty presents additional challenges for taxpayers who seek to pass their wealth to future generations. Some of the most important provisions of the Act are summarized below.

YEAR-BY-YEAR REVIEW OF ESTATE, GIFT AND GST RATES AND EXEMPTIONS

2001 (Current Law)

* Estate and Gift Tax Exemption is $675,000

* GST Exemption is $1.06 Million (indexed for inflation)

*Highest Marginal Estate and Gift Tax Rate is 55%, plus 5% surcharge to phase out benefit of unified credit on estates with a value in excess of $10 Million

* Maximum State Death Tax Credit is 16%

2002

* Estate Tax Exemption is $1 Million

* Gift Tax Exemption is $1 Million

* GST Exemption is $1.1 Million (indexed for inflation)

*Highest Marginal Estate and Gift Tax Rate is 50%, 5% surcharge is repealed

*Maximum State Death Tax Credit is 12%

2003

* Estate Tax Exemption is $1 Million

* Gift Tax Exemption is $1 Million

* GST Exemption is $1 Million (indexed for inflation over $1.1 Million)

*Highest Marginal Estate and Gift Tax Rate is 49%

* Maximum State Death Tax Credit is 8%

2004

* Estate Tax and GST Exemption is $1.5 Million

* Gift Tax Exemption is $1 Million

* Highest Marginal Estate and Gift Tax Rate is 48%

* Maximum State Death Tax Credit is 4%

* Qualified Family-Owned Business Interest (QFOBI) Deduction (2057) * is repealed

2005

* Estate Tax and GST Exemption is $1.5 Million

* Gift Tax Exemption is $1 Million

* Highest Marginal Estate and Gift Tax Rate is 47%

* State Death Tax Credit is repealed (replaced with deduction)

2006

* Estate Tax and GST Exemption is $2 Million

* Gift Tax...