Summary of Economic Growth Tax Relief Reconciliation Act of 2001 (Followed by Maryland Estate Tax Update and HIPAA Update)
I. Reduction in Rates and Increases in Exemption
In 2002, the 5% surtax, which phases out the benefit of the graduated rates, will be repealed. In addition, the top rates and the exemption from estate tax, gift tax, and GST tax will be modified according to the following schedule:
| Year | Top Estate and Gift Tax Rate | Estate Tax Exemption Amount | Gift Tax Exemption Amount |
| 2001 |
55% |
$675,000 |
$675,000 |
| 2002 |
50% |
$1 million |
$1 million |
| 2003 |
49% |
$1 million |
$1 million |
| 2004 |
48% |
$1.5 million |
$1 million |
| 2005 |
47% |
$1.5 million |
$1 million |
| 2006 |
46% |
$2 million |
$1 million |
| 2007 |
45% |
$2 million |
$1 million |
| 2008 |
45% |
$2 million |
$1 million |
| 2009 |
45% |
$3.5 million |
$1 million |
| 2010 |
N/A - Estate Tax and GST Tax repealed, Gift Tax: top individual rate under bill |
N/A |
$1 million |
| 2011 and beyond |
55% |
$1 million |
$1 million |
II. Family-Owned Business Deduction
The family-owned business deduction is repealed in 2004.
III. Generation-Skipping Tax
The generation-skipping tax will be imposed at the highest estate tax rate in effect during the ten-year phase-in period, and will be repealed in 2010.
IV. Repeal of Step-Up in Basis
Beginning in 2011, after the estate tax and GST have been repealed, the present-law rules providing for a fair market value (i.e., stepped-up) basis for property acquired from a decedent are repealed. A modified carryover basis regime will generally take effect. That will provide that recipients of property transferred at the decedent’s death will receive a basis equal to the lesser of the adjusted basis of the decedent or the fair market value of the property on the date of the decedent’s death.
There will be two exceptions:
$1.3 million of basis ($60,000 for noncitizens) may be added to certain assets;
$3 million of basis may be added to assets transferred to a surviving spouse.
V. Sunset Provisions, Maryland Death Tax and HIPAA Update
The repeal of Estate Taxes scheduled for 2010 is subject to future changes by Congress. In the year 2011, the scheduled repeal under existing laws will automatically "sunset", or revert back to the old statute and exemption limit, unless Congress takes additional steps to prevent this from happening. We advise our clients to have their estate plans reviewed regularly to ensure that their tax exposure and personal goals remain adequately addressed in light of the unpredictable legal climate.
Clients should also be aware of Maryland's new cap on the State Death Tax Exemption which is now one million ($1,000,000.00), effective for decedents dying on or after January 1, 2004.
For clients whose estate plans are designed to fully fund a Credit Shelter Trust up to the maximum federal exemption, revisions may be necessary. Updates may be necessary in order to avoid unnecessary exposure to Maryland estate death taxes on assets exceeding $1 million in value. It may also be beneficial to take advantage of the new 2006 Maryland Only QTIP election. (Consult with your certified public accountant and/or estate planning attorney about these recent changes.)
Furthermore, it is advisable to have existing legal documents, especially Advance Directives and/or Health Care Powers of Attorney, updated to include special references and language now required by federal H.I.P.A.A. regulations under the Health Insurance Portability Accountability Act of 1996 (Amended 2003). New language may now be required in order to allow loved ones access to individually identifiable health care information for processing insurance appeals, obtaining medical records and obtaining a doctor's certificate of disability.
Check with your attorney to see if your Plan needs updating in any of the above areas.
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