Repeal Estate Tax

What is it?
An estate tax is levied on the value of an individual's assets after death. The tax is paid by the estate from the decedent's assets. Only estates in excess of $675,000 pay the tax in 2001.

What's Changing?
The estate tax is repealled in 2010. Until then, the unified credit expands to $1 million in 2002 and in stages to $3.5 million in 2009.

What does it mean to me?
The estate tax, only affects about 2 percent of Americans who will pay less in tax.

The Details ...

The 2001 Act contains several provisions related to estate tax. Regarding the estate and gift tax rates, the 2001 Act reduces the rates from 2002 through 2009. In 2010, the estate tax is repealed. The gift tax is retained, but the highest gift tax rate is equal to the highest rate for the individual income tax (35% in 2010).

Year

Estate and Gift
Tax Credit

Maximum Estate and
Gift Tax Rate

2002

$345,800

50%

2003

$345,800

49%

2004

$555,800

48%

2005

$555,800

47%

2006

$780,800

46%

2007

$780,800

45%

2008

$780,800

45%

2009

$1,455,800

45%

2010

Repealed

Highest individual income tax rate % (gift tax only)

Under current law, the basis of inherited capital assets is their fair market on the date of death. If the fair market value on the date of death is higher than the decedent's basis, the basis steps up to the fair market value. If the fair market value on the date of death is lower, the basis of the asset steps down to the fair market value.

The 2001 Act provides that after the repeal of the estate tax in 2010, the basis of assets transferred at the decedent's death will generally be the lesser of the decedent's carryover basis or the fair market value at the time of the decedent's death. A limited step up of $3 million is allowed for assets transferring to a spouse, and $1.3 million in assets transferring to any beneficiary may be stepped up to the higher fair market value.

Note: The 2001 Act contains several other complex provisions regarding death transfers. These provisions are not addressed here.