Estate Taxes and Exemption and Exclusion Amounts

Federal Estate Taxes Parameters:

On June 7, 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 was singed into law and provides for a reduction in the  federal estate and gift tax rates between the years 2002 through 2009. The law also increases during those years the unified credit amount which exempts assets from the federal estate tax. For gifts made after 2001, the new law provides for a lifetime exemption amount of $1,000,000. The law provides for an outright repeal of the federal estate tax for persons dying after 2009. From 2002 through 2009, the highest estate and gift tax rates and the unified credit which exempts assets from the payment of the estate tax are the following:

Calendar Year Estate Tax Exemption  Highest Estate/Gift tax rates
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 and therafter no estate tax 35% (gift tax only)

Federal Gift Taxes and Exclusions:

For gifts made in the calendar year 2006 the annual gift tax exclusion is $12,000. The annual exclusion will increase from $12,000 to $13,000 when the cost-of-living adjustment (COLA) is at least another 10%. At current levels of inflation, it may be several years before the annual gift tax exclusion rises to $13,000. Any amounts paid on behalf of any individual (1) as tuition to an educational organization or (2) as payment for the individual’s medical care will not be considered a gift. The exclusion for medical expenses and tuition is in addition to the $12,000 annual gift tax exclusion and is permitted without regard to the relationship between the donor and the donee.