Introduction

For the past few years, Americans everywhere have been bombarded with radio reports and newspaper articles discussing the possible repeal of the infamous estate tax. At long last, on May 26, 2001 both houses of Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, ("the Act") and President Bush signed it shortly thereafter. Our Consumer Alert explores the nuances of the new Act, and reveals what the changes in law really mean.

Estate Changes in a Nutshell

To grasp the essence of the new law, consider this. The new legislation changes 441 tax laws. The sum result of these changes total the biggest reductions in estate tax in 20 years, and the first cut in individual income tax since the 1986 Act became law. We can put this into perspective when we consider that there have been over 1700 tax law changes in the past five years alone, and more than 7,000 changes since 1986. Undoubtedly, these latest revisions are not to be the last.

As illustrated in the chart below, the Act lowers tax rates on several types of estate tax. Among those to be lowered are: 1) the marginal estate tax, 2) the generation-skipping transfer (GST) tax, and 3) the gift tax. Also, beginning in 2002 and effective through 2009, there will be an increase in the amount of assets that can be transferred at death without estate or GST taxes. And finally, on December 31, 2009, estate and generation-skipping transfer taxes will be repealed altogether. But let's take a closer look.