Increase In Unified Credit/Annual Exclusion

The applicable credit amount (formerly the unified credit or the exemption equivalent credit) allowed in computing estate taxes for estates of decedents dying in 2004 is $555,800. This applicable credit amount exempts $1,500,000 from estate tax liability in 2004. The applicable exclusion amount for estate tax purposes will gradually increase to $3,500,000 in 2009. However, the applicable exclusion for gift tax purposes remains at $1,000,000. The top estate tax rate in 2004 is 48%, which will gradually decrease until 2007 until it reaches 45%, where it will remain for 2007 through 2009. The estate tax is scheduled to be repealed effective January 1, 2010. Nobody can predict whether the repeal will occur. The commentators with whom we work are guessing that the estate tax will be repealed for estates under $3,500,000 and remain at the same (then 45%) or a slightly reduced rate.

The annual exclusion for gift tax purposes remains at $11,000 for 2004. This is the amount which may be given away by a donor to any donee without incurring any gift tax and without using any of the applicable exclusion amount discussed in the preceding paragraph.

— Mike Beausang