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CHAPTER 15

But, until then, we will enjoy new, and lower, estate tax laws. Beginning in 2002, the top gift and estate tax rate will be 50 percent, which is down from 55 percent. Plus, the old five percent surtax (on cumulative transfers between $10 million and $17.184 million) will disappear. As time goes on, the top tax rate will continue to decline until 2010, when the estate tax disappears and the gift tax tops out at 35 percent.

Table 15.1

New Top Gift and Estate Tax Rates

* Year 2002 2003 2004 2005 2006 2007–2009 2010 2011

Rate 50% 49% 48% 47% 46% 45% 35% 55%

While the estate tax rates continue to drop, the threshold at which the estate tax is imposed continues to go up. The maximum amount allowed without triggering estate taxes (the exclusion amount or uni- fied credit) was $675,000 during 2001. The exclusion allowance means that you could give your beneficiaries up to $675,000 tax free. Anything above that amount was subject to an estate tax of between 37 and 55 percent. That rate was supposed to increase gradually until 2006, when it was scheduled to top out at $1 million. Now, the exclu- sion amount for the year 2002 is $1 million, increasing every year until 2009. Then the tax will be repealed in 2010. Unfortunately, many people don’t understand that the estate tax will only be gone for just that one year. Barring any action from Congress, the estate tax will be reinstated in 2011 at the $1-million exclusion allowance.

*Under the new law’s sunset provision, the old law will be reinstated unless Congress takes further action.

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