On May 26, 2001, Congress set new provisions in the tax code that will repeal the federal estate tax on a graduated basis, beginning in 2002 and completed in 2010. Under the new law the exemption from Federal estate tax will be increased, and the highest estate tax brackets will be reduced as follows:

Calender Year              Exemption Amount                Highest Estate and
                                      Transfers at Death Only       Gift Tax Rate ______________________________________________________________________________

2002                               $ 1 million                                 50%
2003                               $ 1 million                                 49%
2004                               $ 1.5 million                              48%
2005                               $ 1.5 million                              47%
2006                               $ 2 million                                 46%
2007                               $ 2 million                                 45%
2008                               $ 2 million                                 45%
2009                               $ 3.5 million                              45%
2010                               Estate Tax Repealed ______________________________________________________________________________

Additionally, the Generation Skipping Tax will be phased out over the next 10 years and will finally be repealed in 2010. In the meantime, the current exemption for skipping generations is $1,060,000, and this amount will be graduated as per the chart above beginning in 2004.

The above represents some very substantial estate tax reduction, but in order to maximize the benefits of these reductions, it is absolutely essential that you seek the counsel of a qualified estate tax attorney and do the necessary estate tax planning.

Individuals continue to be permitted to make annual gifts of $10,000 (indexed for inflation) during life to children or other individuals and receive an annual exclusion from the gift tax. The lifetime gift tax is increased $1,000,000 in 2002 and stays at this level indefinitely.. Though the estate tax is repealed as of 2010, a tax on transfers of gifts to individuals during one's life (i.e. the gift tax) beyond the $1,000,000 lifetime exemption, is retained.

Under former law, inherited appreciated assets received a "step-up" in cost basis to the current market value as of date of death. Under the new law, however, "step-up" goes away beginning in 2010, and the heirs will inherit at the decedent's cost basis or current market value whichever is lower. The exception to this is on spousal transfers where an inheriting spouse is permitted to use up to a $3 million basis increase on assets received from a decedent spouse. However, no basis increase will be allowed for property that had been acquired within three years of death. Rules for jointly held property and community property remain the same.

Come January 1, 2011 the new tax law will sunset and unless Congress extends or changes any of its provisions, the new law will disappear and we will revert to prior estate tax law. There is much speculation as to what future Congress' will do and that will depend a great deal on politics and the economy of the future.

Suggestions:

1. If your estate is worth $1 million ($ 2 million for married couples) or more, visit with a qualified estate tax attorney and be sure you have the proper language in your will that will minimize estate taxes if either of you pass away between now and 2010.
   
   
2. The charitable remainder trust and the charitable gift annuity are still powerful mechanisms that can assist you with increasing your retirement income and shelter you from capital gains taxes.
   
   
3. Whether you have a taxable estate or not, don't forget to do something for charity.

"What we have done for ourselves alone dies with us; what we have done for others and the world remains and is immortal." — Albert Pike

If you would like to discuss this further and ask any questions, I would be delighted to receive your phone call or email.

Jerry Rohrbach, CFRE, ChFC
Director of Planned Giving
1-800-822-6957
jerry.rohrbach@temple.edu

---

• The Charitable Gift Annuity
• Establishing an Endowment at Temple
• Pooled Income Fund
• The Charitable Remainder Trust
• The Deferred Payment Charitable Gift Annuity
• The Charitable Lead Trust
• Bequests
• Life Insurance
• Retirement Plan
• How the Repeal of Estate Tax Will Affect You
• Request more information