Estate & Gift Tax
2002 Changes

Increased Estate Tax Applicable Exclusion Amount

The applicable exclusion amount is the amount on which the unified credit (applicable credit amount) is based. An estate tax return for a U.S. citizen or resident needs to be filed only if the gross estate exceeds this amount.

Exclusion Year                           Amount
2002 and 2003 ...................... $1,000,000
2004 and 2005 ....................... 1,500,000
2006, 2007, and 2008 ................ 2,000,000
2009 ................................ 3,500,000

Increased Gift Tax Applicable Exclusion Amount

Beginning with gifts made in 2002, the applicable exclusion amount for lifetime gifts will be fixed at $1 million.

Increased Annual Exclusion for Gifts

The annual exclusion for gifts of present interests made to a donee during the calendar year is increased to $11,000.

The annual exclusion for gifts made to spouses who are not U.S. citizens is increased to $110,000.

Reduction of Maximum Estate and Gift Tax Rate

For estates of decedents dying, and gifts made, after 2001, the maximum rate for the estate tax and the gift tax will be reduced as follows.

Maximum Year                  Tax Rate
2002 .................................. 50%
2003 .................................. 49%
2004 .................................. 48%
2005 .................................. 47%
2006 .................................. 46%
2007, 2008, and 2009 .................. 45%

Repeal of Phaseout of Graduated Rates

For estates of decedents dying, and gifts made, after 2001, the benefit of the graduated rates will no longer be phased out for estates and gifts in excess of $10 million.

Reduction of Credit for State Death Taxes

For estates of decedents dying in 2002, the credit allowed for state death taxes will be limited to 75% of the amount that would otherwise have been allowed. For estates of decedents dying in 2003 and 2004, the credit will be limited to 50% and 25% respectively.

For estates of decedents dying after 2004, the state death tax credit will be replaced with a deduction for state death taxes.

Changes to Installment Payment Provisions

For estates of decedents dying after 2001, several rules applicable to qualifying for installment payments of estate tax have been changed.

• The allowable number of partners and shareholders in a closely held business is increased from 15 to 45.
• Stock in qualifying lending and finance businesses is treated as stock in an active trade or business company.
• The rules regarding non-readily-tradable stock and holding company stock are clarified.

Increase in Generation Skipping Transfer (GST) Exemption

The generation-skipping transfer (GST) lifetime exemption increased by $40,000 to $1,100,000. The annual increase can only be allocated to transfers made during or after the year of the increase.

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