Maximizing EstateTax Advantages

How the Economic Growth and Tax Relief Act of 2001
Affects Your Estate Plan

The new Economic Growth and Tax Relief Reconciliation Act of 2001 (herein after The Act) became effective on May 26, 2001 and by its terms will be repealed after December 31, 2010.

While most of the provisions of The Act have to do with income taxes, we emphasize those having to do with taxable gifts and estates.

The unified tax credit sheltering your estate from estate taxes (sometimes referred to as "death taxes") will increase in the year 2006 to two million, and in 2009 to 3.5 million while the tax rate drops from 50 to 45 percent over that period. In 2010 the estate tax will be repealed. However, the Act expires at the end of that year bringing back the estate tax in the year 2011 with a unified tax credit sheltering only one million.

The credit for the gift tax, on the other hand, will shelter one million dollars and this will remain constant during the years of the Act. Unlike the estate taxes, gift taxes will not be repealed. Beginning January 1, 2006, the annual exclusion for gift taxes increases from $11,000 per donee per year to $12,000 per donee per year. This would permit a married couple to gift $24,000 to individuals each year without using any of their unified tax credit.

Massachusetts, to avoid losing money due to the changes in the estate tax by the Federal Government has enacted legislation stating that the Massachusetts Estate Tax will be calculated under the previous law. In addition, the threshold for Massachusetts Estate Tax as of 2006 is one milion dollars ($1,000,000). Therefore, Massachusetts residents can be liable for Massachusetts Estate Taxes even though no Federal taxes are owed.

The present estate tax law permits assets in an estate to take a stepped up basis as of the date of death which often permits substantial income tax savings. With the potential repeal of estate taxes in 2010, this stepped up basis is likewise repealed and assets passing through an estate will take the decedent’s income tax basis and could result in significant income taxes when sold during and after of the probate of an estate. There is some relief under the Act by way of a spousal $3 million basis adjustment and a $1.3 million basis adjustment.

It will be very important to keep accurate and complete records of your investments as the paperwork under the new Act is expected to be burdensome.

There are still opportunities under the new Act to save estate taxes with a comprehensive estate plan utilizing Trusts.

If you have any questions with regard to the Act or your estate plan, please contact us for a convenient appointment.

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