Introduction to the 2001 Estate Tax Reforms
In the late 1990s, Congress took up the issue of reforming the federal estate tax ("death tax") laws. The result was the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, which modifies and reduces the estate tax burdens between 2002 and 2009. In 2010, the estate tax is scheduled to be repealed altogether, although the gift tax will be retained and capital gains on inherited assets will be taxed for the first time. The changes are summarized in the following table:
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 & Beyond | |
| Applicable Exclusion Amount | $2 Million | $2 Million | $2 Million | $3.5 Million | Repealed | $1.1 Million |
| Lowest Estate Tax Rate | 46% | 45% | 45% | 45% | Repealed | 41% |
| Highest Estate Tax Rate | 46% | 45% | 45% | 45% | Repealed | 55% |
| Lifetime Gifts Market Value Exemption | $1 Million | $1 Million | $1 Million | $1 Million | $1 Million | $1.1 Million |
| Lowest Gift Tax Rate | 41% | 41% | 41% | 41% | 35% | 41% |
| Highest Gift Tax Rate | 46% | 45% | 45% | 45% | 35% | 50% |
| GST Exemption Amount Allowable | $2 Million | $2 Million | $2 Million | $3.5 Million | Repealed | $1.1 Million |
| GST Transfer Tax Rate | 46% | 45% | 45% | 45% | Repealed | 55% |
Unbelievably, however, in 2011 the reforms will be eliminated and the tax laws will essentially revert to the system that was in place in 2001! Obviously, this quicksand of ever-shifting laws seriously complicates estate planning, because a plan that might be ideal if the client dies in 2009 could be a total disaster in 2011. Obviously Congress will have to re-visit the issue, but the ultimate resolution will likely depend as much on the state of the economy and the political party in power as any other factor. The current state of affairs will likely have CPAs and estate planning attorneys tied in knots for the next few years. Clients with estates large enough to be affected by these changes would be well-advised to monitor the situation carefully, and to schedule periodic estate plan reviews.
Roberts & Roberts provides legal services in the fields of real estate, probate, estate planning, business and family law. If you have questions about estate planning in Texas, or if you need an attorney in Killeen, Texas, we would welcome the opportunity to consult with you.
Roberts & Roberts, LLP
