Copyright 2001, Marc S. Weissman
Certified Specialist: Estate Planning, Trust and Probate Law
Certified by the California Board of Legal Specialization of The State Bar of California
Weiss & Weissman, San Francisco, California
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2001 Tax Act

Death Tax Changes

If you believe the politicians, the legislation repeals the federal "death taxes," but that's not until 2010, and then it's for only that 1 year. Because January 1, 2011, we go back to the old law: under the old law (which was being phased in, after 2006 the tax free amount is $1,000,000. Between now and 2009 the tax free amount increases (slowly) every couple of years.

Die in:	Tax Free Amount
1997	$600,000
1998	$625,000
1999	$650,000
2000 2001	$675,000
2002 2003	$1,000,000
2004 2005	$1,500,000
2006 2007 2008	$2,000,000
2009	$3,500,000
2010	NO TAX IF YOU DIE THIS YEAR Watch out for your kids!
2011 AND LATER	$1,000,000 - We're back to the old law!

Of course, a couple can double the tax free amount with a Living Trust.

There will be many tax law changes before then. The recent change in control of the Senate makes us less sure of what direction it may take.

If the law is not changed before 2010, for that year and afterwards if the "sunset" of the law is extended past 2011 and beyond, we must focus on the limitation of the step-up in basis. For an explanation of the Step-Up in Basis.

Once the death taxes are eliminated the step-up in basis will be allowed only for $1,300,000, plus $3,000,000 left to a surviving spouse. You will be able to pick and choose to which assets to apply the step-up.

Remember, further changes in the rules are almost a certainty.

Here are a few key points to keep in mind.

The repeal applies to the federal estate and generation-skipping taxes. It does not repeal the federal gift tax. Also, the legislation does not eliminate any state "death taxes."

Complete repeal will not occur until 2010.

Death tax repeal may eliminate the income tax savings achieved through a "step up" in the basis of property received from a decedent. As a result,. families may not be able to take advantage of the potential benefits of death tax repeal without careful planning.

"Sunset" in 2011? One final aspect of the legislation merits comment. Technically, the changes made by the new law, including the "death tax repeal," will cease to apply after 2010! This highly unusual provision was included to insure technical compliance with the federal budget law. The lawmakers obviously assume that this provision will be eliminated in future legislation.

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