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ESTATE PLANNING

by Michael J. Norton

WHAT IS ESTATE PLANNING?

Estate planning is really not for you. It is for your loved ones or for whomever else you want to leave your assets to after your death. It involves planning for your personal property, your stocks, your bank accounts, your IRA and other retirement benefits, your home, your life insurance, and all other things you have accumulated over your lifetime. It also involves planning who would be guardians for your children, whether you should consider trusts for your children, or whether you want to reduce estate taxes.

Estate planning also relates to your lifetime planning. For example, you may need to consider income tax and gift tax planning, orderly transfer of a family business or farm, and advance directives regarding your wishes for medical care and potential disability. The major estate planning documents are wills, trusts, living wills, anatomical gifts, and medical and financial powers of attorney. In general, some of the important considerations in estate planning are: planning for incapacity or disability; avoiding intestacy; saving estate taxes; providing financial management; taking care of and protecting beneficiaries; preserving assets; and appointing one's own choice of personal representative, trustee, or other fiduciary.

Often, people neglect the right and responsibility of making their wills and other estate plans. It seems that some believe they are too young, not wealthy enough, or that it will cost too much. Most often, however, estate plans simply get lost in the shuffle and are put off until it's too late. Whether you have an estate plan or not, instructions are in place to direct the disposal of your property at your death. In the absence of a valid will, Colorado law distributes property in specified portions among relatives, regardless of your intentions and wishes. Statistically, these Alaws of descent and distribution@ serve as wills for more than one-half of the American population.

For some, a state-made will may be enough. But, for most, whether they are wealthy or of modest means, it is important to exercise their right to plan. When properly drafted by a qualified attorney, a complete estate plan minimizes settlement costs and taxes, arranges for your property to be managed as you want, and provides for your spouse, children, friends, and others you wish to remember. A guardian can also be suggested for your minor children.

Perhaps the most important part of estate planning is taking the first step. Making an inventory of personally held assets and goals is for many people the best place to start. Drafting an outline of your estate holdings may save you money. Your attorney can prepare your will more quickly if you provide the necessary information about your circumstances and your plans.

Your plan should consider:

1. People. It is a good idea to make a list of the people and organizations for whom you want to provide. This might include family members, such as a spouse or partner, children, grandchildren, close friends, and employees; places of worship and other important institutions or causes to which you have a strong bond.
2. Property. List all the property you own. Besides cash, note all property, such as real estate, securities, automobiles, life insurance, other investments, and any collections of value. For each, estimate the current fair marked value and the cost basis. Note how each asset is owned, e.g., joint tenancy, sole ownership, and the like.
3. Plans. Match people with property. Think about how you want to provide for and be remembered by each member on your list. List which property or benefits you want to leave to each person and organization named.
4. Planners. List the professional planners you will need to put your plans into action. If you desire to make a charitable contribution, consult a representative of the charitable institution(s) you wish to remember.

WHAT DO I NEED?

To carry out a practical, effective, and efficient estate plan, most people need at least three properly prepared, properly executed documents. These include a will, a Durable Power of Attorney, and a Health Care Power of Attorney. Some people may also need a trust for children, grandchildren, or other relatives.

WHAT IS A WILL?

A will is a formally executed, written instrument that directs your personal representative - a person to act in you place after your death -- to dispose of those assets that are or become "probate assets" in accordance with your written wishes. Simply put, your probate assets are those assets that are owned by you at death. Examples of probate assets include real estate held in your name, your business, your household furnishings, or any account or asset that is not set up to be transferred on death or paid on death to another. It is also a document which allows you to leave your property to persons or charities in the percentages or specific amounts you may determine. A will usually names guardians for your minor children, trustees for any trust you create, and your personal representative (called executor by some). A will can be as simple as Aat my death, I leave all of my property to my wife. More likely, it will be more complex, especially if you have small children, a large estate, or are in a second marriage.

DO ALL ASSETS PASS BY YOUR WILL?

No. Property which passes by a will is called Aprobate property.@ These are generally assets held in your own name. Typical probate property includes cash on hand, bank accounts not in joint tenancy or without a payable on death (POD) or transferee designation, stocks in public or private companies, bonds, partnership interests, real property not in joint tenancy, and personal and household property. Property which does not pass by a will is called Anon-probate property.@ Typical non-probate property includes proceeds of life insurance policies, property held in joint tenancy, individual retirement accounts, employee benefits, annuity contracts with survivor benefits, and property transferred during life to a trust.

It is important to know what assets you own and how they are titled. Many assets -- both real estate and personal property -- are held as non-probate assets and are thus not governed by the terms of the will or trust. It is important for you to be aware of these circumstances as you develop your estate plan. The four major kinds of non-probate property are life insurance, retirement plans, trusts, or property owned in joint tenancy. In particular,

1. Life insurance. Life insurance proceeds are paid to a named beneficiary and do not pass by the terms of a will. Generally, however, the value of life insurance proceeds are included in the decedent's estate for estate tax determination purposes. Policies with amounts included in the decedent's estate are policies in which the incidents of ownership of the policy or the beneficiary designation cause the death proceeds to be included in the taxable estate of the decedent. A change in ownership and beneficiary may be necessary to exclude the proceeds from estate taxation. Transfer of a policy by the insured within three years of death will cause the death proceeds to be included in the gross estate. If a transferred policy has a cash value, a gift tax return may be required and gift taxes may be incurred. If life insurance intended to pay estate taxes is includible in the decedent's estate, the insurance itself becomes a taxable item, reducing its value. Life insurance that is not included in the gross estate passes to the beneficiaries undiminished by estate taxes.
2. Retirement Plan Benefits. Retirement plan benefits also are paid to a named beneficiary and are not affected by a will. Retirement plans include IRAs, Keoghs, profit-sharing plans, pension plans, SEP plans, and 401(k) plans. Many plans, however, have specific safeguards for spouses; so if you name someone other than your spouse as beneficiary, that named beneficiary may not necessarily receive the proceeds unless the spouse consents to the named beneficiary. It can be a good planning technique to leave retirement plan benefits to a family trust.
3. Trusts. There are all kinds of trusts. A trust is a contract you enter into during your lifetime that directs your trustee to manage and/or dispose of the assets transferred to the trust (during your lifetime or at your death) in accordance with the terms of the trust. Your trustee holds title to certain assets and manages them for the benefit of another called the beneficiary. When a trust is created, it states who will receive the property and when the trust will end.
   There are a number of legitimate trusts which may be used for tax and estate planning. These include (a) a marital deduction trust to be used to transfer amounts to your spouse without paying gift or estate tax while insuring that the trust assets will be available for children on the spouse's death; (b) grantor retained annuity trusts (GRATs), grantor retained unitrusts (GRUTs), and qualified personal residence trusts (QPRTs), any of which can be set up during life to lower gift and estate tax costs of transferring property to children; (c) life insurance trusts that can keep life insurance proceeds from being taxed in the insured's estate; and (d) revocable trusts that provide a benefit in having property pass to beneficiaries on the death of the owner without having to go through the probate process.
4. Joint Tenancy Property. Property owned in joint tenancy passes automatically by operation of law to the surviving joint tenant. Both real property and personal property, such as a home or a bank account, can be placed in joint tenancy. For example, if you own your fishing cabin in joint tenancy with your friend George and your will states you leave your cabin to Beth, the cabin will, by operation of law, pass to George. Joint tenancy is different than tenants in common. Property owned by tenants in common passes under a will according to the share owned by each tenant. In this example, if the cabin is owned co-equally as tenants in common with George, and your will states you give the cabin to Beth, your one-half interest will pass to Beth. Fifty percent of the value of property owned jointly is included in your estate. Any debt on the property that is outstanding at the time of death is treated as contributed equally by the joint owners.

WHAT IS PROBATE?

Probate is the legal court-supervised process designed to facilitate the prompt and orderly transfer of a deceased person's probate property to those entitled to it, free from the claims of the deceased's creditors. During the probate process, your personal representative collects property, pays debts and any taxes, and distributes assets according to your will (or by intestate succession if there is no will). AProbate property@ will be subject to the probate process which usually lasts six months to one year.

WHAT IS A TRUST?

A trust is a powerful income, gift, and estate planning tool; but are complicated and can be expensive to set up. A trust is created by a legal document that transfer title to property from the owner (usually called the grantor or the trustor) to another person (usually called the trustee) who holds and manages that property for the trust's beneficiaries.

There are two general types of trusts: testamentary trusts and living (or inter vivos) trusts. A testamentary trust is created by a will and usually (but not always) do not take effect until the death of the testator (the person writing the will).

A testamentary trust names the trustee and the beneficiaries and spells out how to pay out income and principal in the trust. A testamentary trust can help insure that an inheritance is used wisely. Instead of transferring assets outright to beneficiaries, particularly younger beneficiaries who may not have achieved the measure of maturity or judgment required to handle substantial sums of money (which, by law, includes any young person under the age of 18 years), assets are held in a testamentary trust to be managed by a trustee and disbursed pursuant to a predetermined schedule.

A living or inter vivos trust is created and takes effect while the grantor is still living. Living trusts, which may be revocable or irrevocable, also spell out how to pay out income and principal in the trust. While a living trust can serve many of the same purposes as a testamentary trust, you must determine whether it will be revocable or irrevocable. With both types of trusts, you must transfer title of your assets to the trust. In contrast to a revocable trust, however, an irrevocable trust, once created, cannot be altered without court intervention and permanently removes assets from your estate. Any property transferred to the trust is no longer yours and may be subject to gift taxes or reduce the "unified credit" available to you at your death. Instead, the irrevocable trust becomes a separate entity that pays taxes on the assets' earnings.

Upon death, assets titled in the name of a living trust pass directly to the named beneficiaries avoiding the legal probate process and its inherent costs. Also, while a will can be a matter of public record since it is often filed with a court in the legal probate process, a living will can maintain the privacy of your estate. In addition, a living trust can be useful if you own out-of-state real property or if you become unable to administer your affairs. It must be remembered, however, that, while you may avoid the legal probate process, you cannot avoid estate tax if your estate is valued at more than the amount of the then-current "unified credit."

SHOULD YOU AVOID PROBATE WITH A REVOCABLE OR LIVING TRUST?

Maybe, but not necessarily. Before 1974, it was often more costly to pass property by a will than to pass property by non-probate transfers (joint tenancy or a revocable living trust). In 1974, Colorado adopted the Uniform Probate Code which significantly simplified probate and reduced costs of probate. This code has been amended from time to time since then. It provides for two primary forms of probate proceedings: informal and formal. Informal proceedings are quasi-administrative in nature and, although conducted under the jurisdiction of the probate court, proceed with minimal judicial oversight or supervision.

A revocable trust may be an effective method for avoiding probate for certain assets, including insurance and out-of-state real property. Some advantages are: (1) the dispositive provisions of a settlor=s estate plan generally remain private since trusts do not ordinarily become a matter of public record as do wills; (2) insurance proceeds payable to the trustee of a trust are not subject to the delays of probate administration and may be invested and disbursed to beneficiaries immediately upon receipt; and (3) in the case of out-of-state real property, ancillary probate may be avoided if the real property is held in a trust.

WHY WOULD YOU WANT A LIVING TRUST?

There are a number of good reasons. However, there are at least three situations in which the use of a living trust makes good sense. If you own real property outside Colorado, ancillary probate (probate in another state) can be avoided by holding the property in the name of a living trust. Second, if you think you may become mentally disabled or are getting to the point where you do not want to manage your assets, a living trust may be a good idea. Third, the living trust is used for privacy reasons. A will is filed with the court and may be read by anyone. In general, a living trust does not have to be filed with any government agency; but upon death this circumstance may change.

WHAT ARE THE DISADVANTAGES OF A LIVING TRUST?

Contrary to popular belief, a living trust does not avoid federal estate taxes or creditors. Probate is avoided only if property is actually transferred to the trust (called funding the trust). The most common problem with a living trust is funding the trust and making sure all assets are titled properly in the trust name. In addition, it can be expensive to set up and fund a living trust, plus it may be unwieldy to manage and certain trusts, when funded, may become separate taxpayers. The income tax rates for trusts are among the highest tax rates.

WHAT ADDITIONAL ESTATE PLANNING DOCUMENTS CAN YOU CONSIDER?

1. Living Will. A living will is a formal document that announces that you do not want to be kept alive by artificial means or heroic measures. In Colorado, a doctor must follow its instructions. The Colorado statute regarding living wills addresses both life support systems (respirator, heart machine, etc.) and whether food and water should be withheld. If the execution of a living will makes you feel uncomfortable or you are philosophically opposed to this concept, do not hesitate to say so.
2. Medical Power of Attorney. A medical or health care power of attorney is a formal document that names another person to act on your behalf for medical decisions when you lack the capacity to make them for yourself. A medical power of attorney can be designed to be used only if you are unable to make decisions for yourself. It can be a simple appointment for a person to make all decisions or it can be customized, i.e., itemizing the specific procedures to be provided or withheld and it can be for a short term or for a long term.
3. Anatomical Gift. You may request that any part of your body be used for transplant or research. This can be accomplished by a provision in your living will and/or medical power of attorney, by signing separate written instructions, or by signing the organ donor instructions on the back of your driver=s license.
4. Do Not Resuscitate Order (Colorado Directive). If you are elderly or terminal, you may desire a document, medical bracelet or necklace which directs medical service personnel not to give you CPR (cardiopulmonary resuscitation). As these can only be obtained through a physician, you should discuss this with your medical care giver.
5. Financial Power of Attorney. A financial power of attorney is a document in which you name another person to act on your behalf for legal and financial matters (such as selling your car). By appointing an agent, you can avoid a court procedure to appoint a conservator in the event you become disabled or unable to make your own decisions. The power of attorney may allow your agent to do all acts or the acts may be limited.

ESTATE AND GIFT TAX BASICS.

The federal taxation of gifts and estates is based on a cumulative, integrated system. Gifts made during life and transfers at death are taxed together on a cumulative basis. The taxes are imposed on the person giving the property and not on the person receiving the property. Rules for non-U.S. citizens are substantially different that the rules for a U. S. citizen.

Under the current unified United States estate and gift tax laws, the estate of every person dying in 2003 has an applicable exclusion amount (or equivalent exemption) of $1,000,000 that passes free of estate and gift taxes (it is commonly called the Unified Credit) (1). This exemption may be used up during your life-time and/or at death, and is in addition to the exclusion for gifts during the donor's life-time. It is also in addition to the lifetime exclusion of qualified transfers paid directly to an educational institution for the education or training of an individual, or directly to a provider of medical care for an individual. Furthermore, there is an unlimited estate tax deduction for any amount of property given to a qualified charity at death.

In addition, as a result of the marital deduction, an unlimited amount of property may pass estate and gift tax free from one spouse to the other at the death of the first spouse to die; this transfer may be outright, in trust (such as a general power of appointment marital trust, or a qualified terminable interest property marital trust), or, if the recipient spouse is not a United States citizen, in a qualified domestic trust, called QDOT. As a result of the marital deduction, an estate of any size can pass to the surviving spouse free of estate and gift taxes. The problem that often arises is that the surviving spouse's estate is then larger than the Unified Credit mentioned above. This can result in substantial estate taxes at the surviving spouse's death.

In order to reduce or eliminate these potential estate taxes, husbands and wives may re-arrange titling of assets and beneficiary designations in order to equalize their estates and in order to enable the first spouse to die to use the Unified Credit to establish a credit shelter trust for the benefit of the surviving spouse and children. This credit shelter trust will provide for the surviving spouse and children, but will not be taxed in the estate of the second spouse to die. One benefit of the credit shelter trust is that, while the credit shelter trust may be established at the amount of the equivalent exemption for the year of death of the first spouse to die, if the value of the assets in the credit shelter trust grows prior to the death of the second spouse to die, that increased value remains sheltered, and passes to the remaining beneficiaries free of estate taxes.

Under the new tax law called the Economic Growth and Tax Relief Reconciliation Act of 2001, the value of an estate that is exempt from estate taxes increases annually. In addition, the rate of tax on larger estates is slowly reduced from 2002 through 2010 when the estate tax is repealed for one year. Estate taxes are then reinstated in 2011. The new law increases the estate tax exclusion amount (commonly known as the unified credit) and reduces the top estate tax rate as follows:

The new law does not repeal the gift tax (currently equivalent to the estate tax). However, the gift tax exclusion, which will be different from the estate tax exclusion, increases to $1,000,000 in 2002 and remains at that level thereafter.

The new law also increases the generation skipping transfer tax (GST) in the same way as the estate tax exclusion. Likewise, the GST tax rate will decrease in the same manner and levels as the estate tax.

As you can see, there is a quirk in this law, i.e., the estate tax is repealed only for those who die in 2010. When the estate tax is repealed in 2010, the basis rules will be changed to be similar to the gift tax rules but with many opportunities for heirs to get increases in basis. The uncertainty of whether the sunset provision will ever come into play and whether an individual will die during a period of increasing exemption amounts makes planning difficult. It continues to be important, however, for individuals to write wills and develop estate plans to insure that their assets will pass as they desire and that special needs of particular heirs will be properly addressed.

DEATH TAXES.

The federal estate tax is likely one of the largest taxes a family will ever have to pay. It is a tax on your right to transfer property to others at your death. Currently, the federal tax rates start at 37 % and rise to 55 % on every dollar over the exemption amount. If your estate at your death is less than the estate tax exclusion amount listed above, there will be no federal estate taxes due. In determining the value of your estate, the government includes everything you own, even the face value of your life insurance policies. The following examples show taxes and tax rates:

Gift and estate taxes are imposed on the fair market value of the transferred property. For gift tax purposes, fair market value is measured on the date of the gift. For estate tax purposes, fair market value is measured on the date of death or on the "alternative valuation" date six months after the date of death.

It is important to note that Colorado does not have a state gift tax. Importantly, effective on January 1, 2005, Colorado's death tax credit was eliminated. Thus, from that date, there is, in effect, no Colorado estate tax.

HOW DOES RETIREMENT PLANNING FACTOR IN?

Retirement accounts are often the most difficult asset to incorporate into an estate plan. The rules governing these accounts by the IRS and by plan providers are usually confusing. Retirement plans whether they are IRAs, employer-sponsored plans, 401(k) plans, profit-sharing plans or other retirement vehicles are usually not controlled by the owner's will or trust. Also, a surviving spouse has rights and options available as the 401(k) beneficiary that are not available to non-spouse beneficiaries. These rights include the ability to roll over the account and treat it as his or her own.

Almost everyone has an IRA or 401(k) plan or some other type of retirement account. These accounts are a great way to reduce your taxable income and save for retirement. You should be sure you have correctly designated the beneficiary of your retirement plan; and, keep copies of the beneficiary forms with your will and other important papers.

Social Security Benefits. The future of the Social Security system is open to speculation. The Wall Street Journal reported that, in 1945, there were 41.9 workers paying Social Security payroll taxes for every Social Security beneficiary. Currently, the number is about 3 workers for every payee. Be certain your earnings have been properly credited by the Social Security Administration. File Form SSA-7004 to obtain this information or call the Social Security Administration at 1-800-772-1213 to obtain the form.

Individual Retirement Accounts. IRAs have become immensely popular investment vehicles, affording millions of Americans a convenient tax-deferred means to save for retirement. Unfortunately, many IRA owners leave behind sizable account balances when they die. With careful estate planning, the tax benefits of an IRA will not be lost at death. The required beginning date for distributions from traditional non-Roth IRAs is April 1 of the year after an IRA owner turns 70. On or before that date, the IRA must either be distributed in lump sum or begin to be paid out over the remaining life expectancy of the IRA holder or joint life expectancy of the owner and designated beneficiary.

WHAT ARE SOME OTHER ESTATE PLANNING TOOLS?

Irrevocable Life Insurance Trust. Generally, life insurance proceeds are included in your estate. To avoid inclusion in your estate, you can transfer ownership of a policy, along with all incidents of ownership, to either an irrevocable trust or to another person. However, you must survive the transfer by three years or the value of the policy will be considered part of your estate. One advantage of having life insurance proceeds pass outside of your estate is that the funds are then readily available. An estate must go through probate, sometimes a lengthy process, during which assets are not readily available. Although there are numerous ways to create and fund these trusts, usually you make annual gifts to the trust. Based upon current withdrawal rights given to beneficiaries, called Crummey powers, these gifts are designed to qualify for the gift tax annual exclusion. The trust purchases life insurance on your life using the gifts to pay the premiums. The gifts will help to reduce your taxable estate. At your death, the life insurance proceeds are paid to the trust as beneficiary. The irrevocable life insurance trust generally receives the policy proceeds free of income taxes, and with proper planning, the proceeds may be excluded from your estate for estate tax purposes. The trust may use the proceeds to purchase assets from your estate, or to make loans to your estate (provided there is not obligation to make such loans). The personal representative uses this cash to help pay estate taxes and expenses. The assets purchased by the trust may then be distributed to the trust beneficiaries or the trust may continue to hold the assets for the benefit of your heirs as provided in the trust agreement.

Generation Skipping Trust. This trust is a helpful way to gift assets to your grandchildren without incurring a generation skipping tax, while the income from the trust can be paid to your children during their lifetimes. Later, your grandchildren will inherit the principal of the trust at market value, so no income tax will be owed on any trust asset appreciation.

Charitable Remainder Trust. A CRT is an irrevocable trust that benefits the donor and a charity. The trust is funded by a gift of property. This type of trust allows the donor to contribute assets, such as appreciated stock, to a trust which, in turn, sells the assets and invests the proceeds. Generally, the trust will not pay tax on the gains because it is a tax-exempt entity. The trust will then invest the proceeds and pay the donor an income for a fixed term of years. At the end of the term of years, the remainder of the assets are distributed to the designated charity. The donor receives an income tax charitable deduction at the creation of the trust based on an actuarial present value of the charity's right to receive the remainder. CRTs can remove assets from an estate, yet allow the donor to keep an income. A CRT can be an annuity trust or a unitrust. The annuity trust has a fixed income paid at least annually. The unitrust must be a specific percentage of the fair market value and paid at least annually. If the unitrust earns more than the percentage to be paid, then the value of the unitrust increases and future income payments could increase.

Qualified Personal Residence Trust. QPRTs let you transfer your residence at a lower gift tax value and shift future appreciation out of your estate if you live past the end of the trust term. You may transfer your principal residence or a secondary residence to a trust called a qualified personal residence trust or QPRT. This trust is for a specific period of time, usually 10 to 20 years. You continue to use and live in the residence for the term of the trust; you may even serve as trustee of the trust. At the end of the trust term, the residence goes to the beneficiaries of the trust. The beneficiaries' right is called a future interest or remainder interest. Your right to continue to use the property is called a retained interest. Only the value of the remainder interest (full fair market value less the value of the retained interest and contingent reversion) is considered a gift and subject to gift taxes. The longer the trust term, the smaller the remainder interest and the gift taxes. If you die before the end of the trust term, the trust property is taxed in your estate. If you die after the term of the trust, the residence should not be taxed in your estate. It is best to choose a term long enough to minimize gift taxes, but short enough that you will probably outlive the trust to avoid estate taxes.

SUMMARY

Individuals should continue to develop estate plans to insure that their assets will pass as they desire and that special needs of particular heirs will be properly addressed. This is so even if there is a good chance of survival until a year when estate tax won't be owed because of the increasing exemption or the repeal scheduled for 2010. Individuals who may have an estate larger than the increasing Unified Credit or exemption amount (or the $1 million amount that will apply for 2010 after estate tax is restored one year after it is repealed) should consider making annual exclusion gifts each year. The gift tax annual exclusion effective for 2003 allows you to give $11,000 to an unlimited number of donees each year without paying gift tax. By doing this, you remove the post-transfer growth in the gifts from your estate. Restrictive trusts can be set up to minimize the prospect that the donee would waste the gift at an early time. Other steps to reduce estate tax include setting up a life insurance trust, establishing a grantor retained annuity trust (GRAT), and placing one's residence in a special type of trust called a qualified personal residence trust (QPRT).

Married couples should make sure that each spouse has sufficient assets to take advantage of the increased exemption. Also, their wills should establish a so-called bypass or credit-shelter trust. Such a trust is funded with an amount equal to the exemption from federal estate tax. The survivor gets income from the trust and the assets in the trust pass to the children free of estate tax on the survivor's death. Assets above the exempt amount can be given outright to the surviving spouse or placed in a special marital trust for him or her. This approach may have to be altered depending on the year involved and the size of the estates. If your will was drafted before the effective date of the 2001 Tax Act, you may want to have it reviewed to be sure the credit-shelter trust, if your will provides for one, is not over-funded to the detriment of the marital trust or the outright bequest to the surviving spouse.

One additional suggestion is that you retain all records of cost or other basis of assets you have acquired. As you may know, there is a scheduled change to a modified carryover basis system in 2010. For purchased items, this means receipts and statements showing the amount you paid for it. For items inherited before 2010, basis ordinarily is the date of death value of the item. For property acquired by gift, the donee's basis usually is the same as the donor's basis.

While the 2001 Tax Act will likely save federal estate taxes to your benefit, it has added many new planning complications. We invite you to contact our office to set up an appointment so that we can properly reexamine your estate plan to help to keep your estate tax, and income tax for your heirs, to a minimum and still achieve your goals and objectives.

The information contained in this outline should not be acted or relied upon without professional advice. Burns, Figa & Will, P.C., can assist you with your estate planning needs. We are also required by U. S. Treasury Regulations to inform you that, to the extent this document includes any federal tax advice, this document is not intended or written by Burns, Figa & Will, P.C., to be used, and cannot be used, for the purpose of avoiding federal tax penalties.

¹ It is important to note that, after 2003, the amount of the exclusion for gifts is frozen at $1,000,000. In other words, beginning in 2004, the Aunified credit@ is no longer unified with the applicable exclusion amount.

² The unified credit was, under old law, scheduled to stay at $1,000,000 for years after 2006.

³ Following repeal of the estate tax, the old exemption is, unless changed by Congress, reinstated. In other words, the exemption returns to the level of $1,000,000 and a maximum tax rate of 55 %.