Death Tax Moderates On New Year's Day

by Mike Godfrey, Tax-News.com, New York

27 December 2001

On New Year's Day, under President Bush's tax-cutting package signed into law way back in June (remember?), the general exclusion from estate and gift taxes, now $675,000, will rise to $1 million, and the top rate of tax, now 55%, will fall to 50%.

The law signed in June provides for gradual reductions in the rate until it reaches zero in 2010 - but then the tax is re-imposed in 2011. Most observers however think that growing pressures to raise revenue to offset budget deficits mean that the process will be interrupted long before 2010, probably with a measure that revives the tax but raises the exclusion so high that only the super-wealthy would pay it.

Tax advisers and indeed their clients are thoroughly confused by the situation. A report from tax publisher CCH Inc says: 'Not only will many estate plans have to be re-examined and re-written, but some of the basic principles that have guided estate planning will be stood on their heads.' Or not, according to how you choose to interpret the situation in Congress.

The President wasn't worrying about such niceties when he celebrated the signing of his bill: 'Tax relief makes the code more fair for small businesses and farmers and individuals by eliminating the death tax', he said to warm applause.

One thing is sure: tax advisers will be having a very happy Christmas, and will be looking forward to a prosperous New Year!

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