Estate tacks: planning sails you through the legal maze.

• Author: Sikora, Nicole M.
• Position: SPECIAL ADVERTISING SECTION: ECONOMIC DEVELOPMENT - Advertisement

With President George W. Bush back in the White House and Republicans holding a majority in the House and the Senate, are the days of the estate tax numbered? The topic has become charged with emotion, often along political lines. The stakes could be huge.

The Heritage Foundation, a Washington, D.C.-based think tank, says the tax makes it nearly impossible for some families to transfer a business to the next generation. In 2001, Congress passed a compromise that did not repeal the estate tax, as some had hoped, but allowed for gradually increased individual estate-tax exemptions, lower tax rates and a one-year moratorium in 2010. Many believed Bush, if he won re-election, would kill the tax or make the increased exemptions permanent.

But North Carolina estate-planning lawyers aren't holding their breath waiting for permanent repeal. "Nobody knows what's going to happen between now and 2011," says Penn Craver Jr., a partner with Kilpatrick Stockton LLP in Winston-Salem.

Bill Culp Jr., a partner with Culp, Elliott and Carpenter PLLC in Charlotte, says taxpayers shouldn't pin all their hopes on repeal. "For a lot of people, the estate tax is really a voluntary tax. If you start planning, you can avoid the estate taxes that would otherwise apply. Every year, we have people who die and pay estate taxes. Right now, those who wait are running the risk of an untimely death and having to pay."

So what do people need to know about estate-tax laws? A lot depends on their assets and objectives. The estate tax didn't become a permanent part of the tax code until 1916. Since then, the tax has been mercurial. The top rate has ranged from 10% to nearly 80%. Individual exemptions have been as low as $50,000. And it wasn't until 1948 that marital deductions were part of the law. By the 1970s, the gift tax and estate taxes were unified. In the 1980s, exemptions were raised, rates dropped and unlimited marital deductions added. In the 1990s, exemptions were raised again, this time to $1 million.

Once Bush came into office, estate-tax rates dropped below 50%. The current exemption is $1.5 million. It is scheduled to rise to $2 million in 2006 and $3.5 million in 2009 before the tax temporarily disappears in 2010. In 2011, the tax will return with a $1 million exemption and a top rate of 55%. That is, unless the law is revisited. "Our economy is coming back up, and we don't need the revenue. Now, I think it's more about our national policy and whether we should...