Economic Growth And Tax Relief
Reconciliation Act of 2001

Estate, Gift, & Generation-Skipping Transfer Tax Provisions

I. Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes; Increase in Gift Tax Unified Credit Effective Exemption

Under the conference agreement, in 2002, the 5-percent surtax (which phases out the benefit of the graduated rates) and the rates in excess of 50 percent are repealed. 

In addition, in 2002, the unified credit effective exemption amount (for both estate and gift tax purposes) is increased to $1 million. 

In 2003, the estate and gift tax rates in excess of 49 percent are repealed. 

In 2004, the estate and gift tax rates in excess of 48 percent are repealed, and the unified credit effective exemption amount for estate tax purposes is increased to $1.5 million. (The unified credit effective exemption amount for gift tax purposes remains at $1 million as increased in 2002.) 

In addition, in 2004, the family-owned business deduction is repealed. 

In 2005, the estate and gift tax rates in excess of 47 percent are repealed. 

In 2006, the estate and gift tax rates in excess of 46 percent are repealed, and the unified credit effective exemption amount for estate tax purposes is increased to $2 million. 

In 2007, the estate and gift tax rates in excess of 45 percent are repealed. 

In 2009, the unified credit effective exemption amount is increased to $3.5 million. 

In 2010, the estate and generation-skipping transfer taxes are repealed.

From 2002 through 2009, the estate and gift tax rates and unified credit effective exemption amount for estate tax purposes are as shown in Table 5, below.


Table 5-Estate and Gift Tax Rates and Unified Credit Exemption Amount

In 2010, the estate and generation-skipping transfer taxes are repealed. Also beginning in 2010, the top gift tax rate will be the top individual income tax rate as provided under the bill, and, except as provided in regulations, a transfer to trust will be treated as a taxable gift, unless the trust is treated as wholly owned by the donor or the donor’s spouse under the grantor trust provisions of the Code.

After repeal of the estate and generation-skipping transfer taxes, 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present-law rules providing for a fair market value (i.e., stepped-up) basis for property acquired from a decedent are repealed.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 generally takes effect, which provides 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.

Under the conference agreement, from 2002 through 2004, the State death tax credit allowable under present law is reduced as follows: in 2002, the State death tax credit is reduced by 25 percent (from present law amounts); in 2003, the State death tax credit is reduced by 50 percent (from present law amounts); and in 2004, the State death tax credit is reduced by 75 percent (from present law amounts). In 2005, the State death tax credit is repealed, after which there will be a deduction for death taxes (e.g., any estate, inheritance, legacy, or succession taxes) actually paid to any State or the District of Columbia, in respect of property included in the gross estate of the decedent. Such State taxes must have been paid and claimed before the later of: (1) four years after the filing of the estate tax return; or (2) (a) 60 days after a decision of the U.S. Tax Court determining the estate tax liability becomes final, (b) the expiration of the period of extension to pay estate taxes over time under section 6166, or (c) the expiration of the period of limitations in which to file a claim for refund or 60 days after a decision of a court in which such refund suit has become final.

The estate and gift rate reductions, increases in the estate tax unified credit exemption equivalent amounts and generation-skipping transfer tax exemption amount, and reductions in and repeal of the state death tax credit are phased-in over time, beginning with estates of decedents dying and gifts and generation-skipping transfers after December 31, 2001. 



II. Expand Estate Tax Rule for Conservation Easements

The conference agreement expands availability of qualified conservation easements by eliminating the requirement that the land be located within a certain distance from a metropolitan area, national park, wilderness area, or Urban National Forest. Thus, under the conference agreement, a qualified conservation easement may be claimed with respect to any land that is located in the United States or its possessions. The provisions are effective for estates of decedents dying after December 31, 2000.



III. Modify Generation-Skipping Transfer Tax Rules

The conference agreement makes the following modifications to the generation-skipping
transfer tax provisions:

(a) Deemed allocation of the generation-skipping transfer tax exemption to lifetime transfers to trusts that are not direct skips;
(b) Retroactive allocation of the generation-skipping tax exemption;
(c) Severing of trusts holding property having an inclusion ratio of greater than zero;
(d) Modification of certain valuation rules;
(e) Relief from late elections; and
(f) Substantial compliance.

The provisions are generally effective after December 31, 2000.


 
IV. Availability of Installment Payment Relief

The conference agreement expands the availability of installment payment rules to qualified lending and finance business interests and certain holding company stock. In addition, the conference agreement increases from 15 to 45 the number of partners of a partnership or shareholders in a corporation eligible for installment payments of estate tax. The provisions are effective for decedents dying after December 31, 200l.



V. Estate Tax Recapture from Cash Rents of Specially-Valued Property

The conference agreement provides that, if on the date of enactment or at any time within one year after the date of enactment, a claim for refund or credit of any overpayment of tax resulting from the application of net cash lease provisions for spouses and lineal descendants (sec. 2032A(t)(7)(E)) is barred by operation of law or rule of law, then the refund or credit of such overpayment shall, nonetheless, be allowed if a claim therefore is filed before the date that is one year after the date of enactment. This provision is effective for refund claims filed prior to the date that is one year after the date of enactment.



VI. Pension And Individual Retirement Arrangement Provisions

The conference agreement makes extensive changes to the rules relating to individual retirement arrangements (“IRAs”) and qualified pension plans. Among the changes included in the conference agreement are the following provisions: partnership or shareholders in a corporation eligible for installment payments of estate tax. The provisions are effective for decedents dying after December 31, 200l.



VII. Estate Tax Recapture from Cash Rents of Specially-Valued Property

The conference agreement provides that, if on the date of enactment or at any time within one year after the date of enactment, a claim for refund or credit of any overpayment of tax resulting from the application of net cash lease provisions for spouses and lineal descendants (sec. 2032A(t)(7)(E)) is barred by operation of law or rule of law, then the refund or credit of such overpayment shall, nonetheless, be allowed if a claim therefore is filed before the date that is one year after the date of enactment. This provision is effective for refund claims filed prior to the date that is one year after the date of enactment.

Pension and Individual Retirement
Arrangement Provisions

The conference agreement makes extensive changes to the rules relating to individual retirement arrangements (“IRAs”) and qualified pension plans. Among the changes included in the conference agreement are the following provisions:

(1) Increased contribution limits and catch-up contributions to IRAs;

(2) Provisions for expanding coverage, including increased contribution and benefit limits for qualified plans, increases in elective deferral limits, and a credit for certain elective deferrals and IRA contributions; 

(3) Provisions to enhance fairness for women, including additional catch-up contributions for individuals over age 50;

(4) Provisions for increasing portability for plan participants;

(5) Provisions for strengthening pension security and enforcement; and

(6) Provisions for reducing regulatory burdens.

Sunset

To ensure compliance with the Congressional Budget Act of 1974, the conference agreement provides that all provisions of the bill generally do not apply for taxable, plan or limitation years beginning after December 31, 2010.

Absent Congressional reenactment, federal estate and other transfer taxes of May 2001 return to be controlling law on January 1, 2011 $1 million exemption and 50% tax rate.

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Largely taken form Joint Committee on Taxation staff summary of the wealth transfer tax provisions contained in the conference agreement for H.R. 1836, the Economic Growth and Tax Reconciliation Act of 2001, as approved by the conference committee on may 25, 2001. Some text is modified or reformatted for ease of the reader

Entire tax bill summary: Joint Committee on Taxation, Summary of Provisions Contained in the Conference Agreement for H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act of 2001, JCX-50-01 (May 26, 2001).