Death (Estate) Tax Easing in 1997 Tax Act

Death Tax Easing in 1997 Tax Act

Increase in amount exempt from federal estate tax

Inflation indexing for gift tax allowance

Special death tax relief for small businesses

Increase in amount exempt from federal estate tax

Prior tax law provided a "unified credit" of $192,800 which effectively allowed the first $600,000 of an estate to pass tax-free to beneficiaries

1997 tax act gradually increases the unified credit over the next decade to allow an individual to effectively pass the indicated amount below to heirs, tax-free

Decedents Dying or Making Gifts in		Effective Exemption
1998		$625,000
1999		650,000
2000-2001		675,000
2002-2003		700,000
2004		850,000
2005		950,000
2006		1,000,000

Because credit is available on an individual basis, a couple could effectively transfer twice the above amounts estate-tax free

Inflation indexing for gift tax allowance

Previously, an individual could pass $10,000 per year to an individual free of gift tax

This limit continues with the 1997 law, but the amount is indexed for inflation after 1998

However, the annual exemption for the gift tax is rounded down to the nearest multiple of $1,000

Special death tax relief for small businesses

Previous tax law provided no special estate tax relief for family-owned businesses

The new law allows special treatment for a family-owned business if the business assets constitute more than 50 percent of a decedent's estate

Seek professional help if you think you may qualify