Sea of Uncertainty.

• Author: WOODFORD, JOHN R.
• Position: Brief Article

One of the more significant provisions of the 2001 Tax Act was the repeal of the federal estate tax in 2010. As a result of the phase-ins, phase-outs and sunset provisions, estate planning practitioners appear to have been left with a set of problems that only a crystal ball can solve.

THE NEW LAWIN BRIEF

Changes and Phase-ins:

* The estate tax exemption equivalent rises from $675,000 to $3.5 million between 2002 and 2009.

* The lifetime gift tax exemption is increased to $1 million starting in 2002 and is thereafter frozen at that level.

* Estate and gift tax rates are reduced starting in 2002, dropping to 45 percent in 2009.

* GST exemption increases from $1 million plus to $3.5 million from 2004-09.

* After the estate tax repeal in 2010, the maximum gift tax rate will be reduced to the then maximum individual tax rate, scheduled to be 35 percent.

* After repeal, the step-up in basis is limited to $1.3 million for non-spousal and $3 million for spousal transfers.

Repeals:

* Effective Jan. 1, 2010, the estate tax is repealed.

* The estate tax repeal, itself, is repealed effective Jan. 1, 2011, unless this new Act is re-enacted. If it is not, the law in effect before the new Act resurrects.

* After 2003, the deduction for qualified family-owned business is repealed.

COUNSELING CLIENTS

Ten years is a long time in the arena of tax law. Over the next 10 years we will elect five new Congresses, have two presidential elections and experience several swings in our economy. The chances are very good that there will be further significant changes in this area. So how do we as professional advisers, without enlisting the aid of a psychic, counsel our clients with regard to estate planning? We suggest that you do not rush to judgment, stay the course and do update reviews constantly through this period of phase-ins, phase-outs and sunsets.

* Encourage your clients to visit with you regularly as long as there is a continuing lack of predictability about the ultimate status of the estate and gift tax law. All estate planning documents should be reviewed now, and regularly hereafter.

* Life insurance still needs to be part of estate planning. The client's liquidity needs are still critically important. Don't terminate any policy without being assured that new insurance can be secured.

* The estate tax is still in effect at a minimum for the next 10 years, subject to many phase-in and phase-outs. Consider the distribution of the estate (a) before repeal...