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| First Person |
A Vital Dialogue
David Rubinowitz
05/03/2004
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Recent Tax Changes
For the first time in two years, the credit available
to all individuals to offset U.S. federal estate tax rates has increased. What
is known as the estate exemption amount—or the amount that can be shielded from
estate taxes—rose from $1 million in 2003 to $1.5 million in 2004. Coinciding
with the increase in the estate exemption amount is a slight decrease in the
maximum estate tax rate. The maximum rate has dropped from 49 percent in 2003 to
48 percent in 2004 and is scheduled to decrease in future years, as Figure 1
shows.
THERE ARE MANY REASONS TO HAVE A FAMILY ESTATE PLAN
Some of the more
pressing reasons include:
• The need to have a plan in place for the
management and distribution of assets during life, in the case of
incapacity
or illness, and at death.
• The desire to minimize Administrative
expenses and legal fees.
• The desire to make tax-efficient asset
transfers to family members and favored charities. |
These changes are part of the Economic Growth and Tax Relief Reconciliation Act of 2001. Throughout this decade, the estate exemption amount
is scheduled to gradually increase to $3.5 million in 2009. The maximum estate
tax rate is scheduled to decrease to 45 percent in 2009. In 2010, estate taxes
are scheduled to be repealed. However, unless Congress acts to extend the
repeal, estate tax exemptions and rates will subsequently revert back to the
laws in existence in 2001 when these changes were first passed. Figure 2
compares estate tax liabilities for 2003 and 2004.
Individuals who die in
2004 with a net worth of more than $1.5 million will be subject to federal
estate taxes. These issues should be discussed—and understood—by all family
members in order to devise an effective estate planning strategy.
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