Here's a handy summary of the recent changes in the estate tax, with concerns about the changes, and suggestions on what to do:

1. The Good.

(a) The current $675,000 exemption for each estate is increased to $1 million in 2002, then goes up gradually to $3.5 million in 2009.

(b) The top rate of 55% is reduced to 50% in 2002, then goes down gradually to 45% in 2007.

(c) The estate tax is repealed effective January 1, 2010, but only for that year.

2. The Bad. Some aspects of the new law are troubling:

(a) Repeal may turn out to be a mirage. Congress must affirmatively re-enact repeal to keep it in place after 2010. This forces people to plan for both possibilities, a tax and not a tax.

(b) With repeal comes "carryover basis." Anything over $1.3 million (or $3 million for transfers to spouses) doesn't get a "step-up" in income tax basis. This means less gift and estate tax, but more capital gains tax on an inheritance.

(c) There will still be a gift tax of 40% (with a $1 million lifetime exemption) even after the estate tax disappears, to discourage clever shifting of assets and taxable income among family members.

3. What to do for now. For now, it appears planning should continue as it has been:

(a) Check your approach against new law now, and periodically thereafter, for tax implications and the soundness of your contingency plan generally.

(b) Continue making sensible family and charitable gifts, taking advantage of the exemptions and deductions as they are now available, and as the lifetime exemption increases. If you follow this course and repeal still occurs, you won't have much to regret: you'll have made gifts you can afford and helped your family and favorite charities.

We'll have further analysis of the tax bill for you during the summer.

If you'd like to talk further about your estate planning, please call the attorney with whom you work, or Julie Dickens, Al Falk, Alan Macpherson, Eileen Peterson, or Sandy Rovai, all members of our Trusts & Estates Group. Thanks.

NOTE OF PRIDE: We take great pleasure in announcing that Al Falk of our Trusts & Estates Group has been elected as a Fellow of the American College of Trust and Estate Counsel, in recognition of his distinguished service in the practice of estate planning, probate and trust law.