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Changes in Estate, Gift, and Generation-Skipping Taxes Can
Save You Money
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- Increase in Estate and Gift Tax Unified Credit Goes into Effect. A
unified credit of $202,050 against the estate and gift tax now effectively exempts the
first $625,000 of property transfers during life or at death. The effective exemption is
scheduled to increase until it reaches $1 million in 2006. The increase is phased in as
shown in Table 1-2.
However, very large estates (over $24,100,000) will not enjoy any tax reduction as a
result of the exemption increase if a drafting error in the legislation is fixed by
Congress.
TABLE 1-2
Estate and Gift Tax Unified Credit |
| Date |
Exempt Transfer Amount |
Unified Credit Amount |
| 1998 |
$625,000 |
$202,050 |
| 1999 |
$650,000 |
$211,300 |
| 2000 |
$675,000 |
$220,550 |
| 2001 |
$675,000 |
$220,550 |
| 2002 |
$700,000 |
$229,800 |
| 2003 |
$700,000 |
$229,800 |
| 2004 |
$850,000 |
$287,300 |
| 2005 |
$950,000 |
$326,300 |
| 2006 |
$1,000,000 |
$345,800 |
- Estate Tax Exclusion for Qualified Family-Owned Businesses Begins.
Beginning in 1998, an exclusion of value attributable to a qualified family-owned business
interest becomes available, if the interest is left to qualified heirs. The excludable
amount is the difference between $1.3 million and the amount exempted under the unified
credit for the year. The decedent must be a U.S. citizen or resident at the time of death.
To qualify, a "family-owned business interest" must comprise more than half of
the estate and must have its principal place of business in the United States. A business
is family-owned if one family owns at least half of the business, two families own at
least 70 percent, or three families own at least 90 percent. An individual’s family
includes:
- The individual’s spouse
- Ancestors of the individual, and
- Descendants, and their spouses, of the individual, the individual’s spouse, or a
parent of the individual.
Qualified heirs include members of the decedent’s family and any individual who has
been actively employed by the trade or business for at least 10 years before the date of
the decedent’s death and who acquired the business from the decedent. If a qualified
heir is not a citizen of the United States, different rules apply. To the extent that a
decedent held qualified family-owned business interests in more than one trade or
business, the executor must aggregate all those interests. If certain triggering events
occur, taxpayers may lose the benefit of this relief provision, and additional tax would
be imposed on the date of the event.
- Reduction in Estate Tax for Certain Land Subject to Permanent Conservation
Easement Becomes Available. Estates of decedents dying after 1997 may qualify for
an exclusion from estate tax of 40 percent of the value of land subject to a qualified
conservation easement granted to a qualified charity. The easement must restrict
development rights to preserve habitat, open space, or recreational uses. The 40-percent
exclusion is based on the value of the property after the grant of the easement. The
maximum exclusion in 1998 is $100,000. The exclusion will increase by $100,000 each year
until 2002, when it reaches $500,000. This exclusion is available even if the decedent
received an income tax deduction during his or her lifetime for granting the easement.
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Tax Guide
