Tax Legislation:

Economic Growth and Tax Relief Reconciliation Act of 2001: Part IV (May 17th, 2001)


The Highlights of these changes are:

- Repeals, effective January 1, 2010, the estate and generation-skipping transfer taxes. A tax that is responsible for many smaller and not so smaller businesses closing down after the death of the owner. Family businesses had especially suffered with this tax. Democrats are quick to point out that the estate tax, also known as the “Death Tax”, only affects 2% of the Americans each year and most of them high-income ‘the ones Republicans favor.’

- Phases down the estate and generation-skipping transfer taxes prior to repeal. Maximum tax rate is reduced to 50% from 55% and by 2007 it’ll be down 45%. The estate tax exemption will be phased in each year with increases up to $3.5 million by year 2009. For 2002, it’s increased from $675,000 to $1 million.

- Phases down the gift tax and beginning with January 1, 2010, the maximum gift tax rate will be the maximum individual rate, 35% instead of the current 55%.

- Increases:
o From 2002 through 2009, the exemption equivalent of the unified credit and provides that such amount shall be the same as the GST (generation-skipping transfer tax) exemption amount. For one million dollars in 2002 and 2003 to $3.5 million in 2009.
o The lifetime gift exemption. It’s one million dollars now.

- Reduces the State death tax credit through 2004 (75% in 2002, 50% in 2003, and 25% in 2004), repeals it beginning January 1, 2005, and replaces it with a deduction for such taxes.

- Repeals, effective January 1, 2010, current provisions relating to the basis of property acquired from a decedent.
o With respect to property acquired from a decedent dying on January 1, 2010, or later that
o Replaces current subpart C (Estate and Gift Tax Returns) provisions with new subpart C provisions (Returns Relating to Transfers During Life or at Death). Requires specified information to be reported concerning non-cash assets over $1.3 million transferred at death and certain other gifts. Prescribes penalties for failure to report such information.
o Makes the exclusion of gain on the sale of a principal residence available to heirs in certain cases.
o Revises current provisions concerning the transfer of certain farm, etc., real property to provide, as a general rule, that if the executor of the estate of any decedent satisfies the right of any person to receive a pecuniary bequest with appreciated property, then gain on such exchange shall be recognized to the estate only to the extent that, on the date of such exchange, the fair market value of such property exceeds such value on the date of death. Provides a similar rule for certain trusts.

- More number of partners and shareholders of a particular business can now seek an extension of estate taxes.

- Makes the estate of a decedent with an interest in a qualifying lending and financing business eligible for installment payment of the estate tax.