1.
Increase In Exemption Equivalent Amounts. The Exemption Equivalent Amounts are substantially increased and the marginal tax rates are decreased as follows:
| | New Law | Old Law |
| | Ex. Equiv. | Ex. Equiv. |
|
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
|
Amount
$675,000
$1,000,000
$1,000,000
$1,500,000
$1,500,000
$2,000,000
$2,000,000
$2,000,000
$3,500,000
N/A Repealed
$1,000,000
|
Amount
$675,000
$700,000
$700,000
$850,000
$950,000
$1,000,000
$1,000,000
$1,000,000
$1,000,000
$1,000,000
$1,000,000
|
2.
Gift Taxes. The 2001 Act does not repeal the Gift Tax Law. The exemption equivalent for gift tax purposes for 2002 through 2009 is $1,000,000. There is no similar increase to the gift tax exemption equivalent amounts to $3,500,000 as there is with respect to the estate tax law.
3. Credit Or Deduction For State Estate Taxes. The credit for state estate taxes available to compute the taxable estate will be gradually reduced in annual increments of 25% beginning in 2002 and will be completely repealed in 2005. Between 2006 and 2009, the State death tax credit is replaced by a deduction for the estate taxes actually paid to a state. New York and Florida and a majority of the other states at this time do not have any separate estate tax. The changes and repeal of the Federal estate tax credit and then repeal of the deduction for state estate taxes paid may cause states to consider enacting or reenacting separate state estate tax laws.
4. Generation Skipping Tax Law Changes. The Generation Skipping Tax ("GST") rules are only applicable in substantial estates where there is an interest in creating an estate plan to continue the property in trust for grandchildren and perhaps even longer. Various changes are made to the GST rules. The exemption equivalent is increased in the same manner as the increase under the estate tax law. The rules concerning the timing for the allocation of the GST exemption have been liberalized.
5. Income Tax Basis Of Property Acquired From A Decedent. Under present law, the income tax basis of property acquired from a decedent is equal to the fair market value of the property as of the date of death, and the historical income tax basis becomes immaterial. Under the new law, the income tax basis rules become much more complicated in substantial estates. The Executor has the authority to allocate a general basis adjustment of $1,300,000 to any person and an additional $3,000,000 spousal property basis increase. These rules will take effect only for property acquired from a decedent dying after December 31, 2009.
6. The "Sunset" Provision - One Year Repeal Of Estate Tax. The law provides for the complete repeal of the Federal estate tax for persons dying after December 31, 2009. However, the repeal of the Estate Tax Law is not permanent at this time and will only continue for one year. If Congress does not take any further action, then for persons dying after December 31, 2010, the law will revert to the old law with an exemption equivalent of only $1,000,000.
