Congress recently passed, and the President signed, a new tax bill so we're coming out a little early with our Fall Estate Tax Newsletter. The law changes include the following:

1. Lifetime exemption increased. There are two types of gift tax exemptions: $10,000 per recipient per year (to be indexed to inflation starting in 1999), and an additional $600,000 over the giver's lifetime. What is not used of the lifetime exemption, may be used by one's estate. For a married couple, the $600,000 exemption may be doubled with properly drafted Wills. The lifetime exemption is now scheduled to increase to $1,000,000 over the next ten years, as follows:

The exempt amount has been stuck at $600,000 for the last ten years, so these phased increases are essentially a modest adjustment for inflation. They should, however, give those with medium-sized estates a little breathing room, and those with larger estates an opportunity to increase the compounding benefit of lifetime gifts.

2. Family business exemption added. Congress has now provided an additional exemption for "qualified family-owned business interests," by which the lifetime exemption is increased to $1.3 million. The new statute requires that certain tests be met, including percentage of ownership by the family, material participation in the business, and active nature of the business's assets and income. Congress has also made more attractive the installment payment of estate tax available to those with large interests in family businesses.

3. Statute of limitation shortened. The IRS will no longer be able to second-guess the values of lifetime gifts in auditing an estate, provided the gifts were properly disclosed.

4. "Success tax" on retirement plans eliminated. Congress has eliminated the 15% excise tax on large distributions from, and large accumulations in, retirement plans. This is very good news for a number of our clients.

5. Income tax burdens eased. Several income tax changes are significant to our clients and their personal planning: (a) long-term capital gains rates have been reduced, generally from 28% to 20%; (b) gain on the sale of a residence (up to $250,000 per taxpayer) may now be excluded from taxation altogether; (c) the full-market-value deduction for contributions of securities to private foundations, has been extended another year; and (d) the use and benefit of individual retirement accounts has been liberalized.

If you would like to explore the benefits these changes may hold for you, please call the lawyer with whom you work, or call our Tacoma office and ask for a member of our Personal Planning Group. Our toll-free number is (800) 240-5051.