Trusts and Estates: Gift and Estate Tax Exemptions and Rates

The changes put in place by the Economic Growth and Tax Relief Reconciliation Act of 2001 continue to be in force. Effective January 1, 2008, the gift and estate tax exemptions and rates are as follows:

• The federal estate tax exemption is $2 million.
  
• The generation skipping transfer tax exemption is $2 million.
  
• The top federal estate tax rate is 45%.
  
• The annual gift tax exclusion amount is $12,000.
  
• The lifetime gift tax exemption amount is $1 million.

States that have "decoupled" or separated from the federal tax system may have their own estate tax exemption amounts. As with the federal exemption amount, these numbers may change from year to year.

Although the federal tax exemptions did not change for 2008, changes will be on the way soon. The estate and generation skipping transfer tax exemptions are both scheduled to increase to $3.5 million on January 1, 2009. On January 1, 2010, the estate tax will be eliminated. On January 1, 2011, the estate tax will be reinstated to 2001 levels ($1 million exemption levels and a 55% top tax rate). As recently as 2005, permanent repeal of the estate tax seemed possible. However, momentum for repeal slowed during 2005 and with the election of Democratic majorities in the House and Senate in 2006, the chances of repeal appear slim. Given the unsettled nature of the law at this time, we recommend that you contact an attorney in our wealth management group to discuss your particular situation.