Under the law just signed by President Bush, estate tax exemptions will rise gradually while the rates go down. Repeals comes at the dawn of 2010. The estate of a person who dies during 2010, therefore, will not be subject to any estate tax. A year later, the tax of up to 55 percent will apply once again and the exemptions will be much lower. It is not all clear sailing for estates in the repeal year of 2010 because a complex new system of capital gains taxation automatically goes into place.
Current law calculates that gain based on the date the asset was inherited.
These changes are likely to have a widespread effect on wills, trusts and other estate planning activity. People will have to decide if they believe Congress eventually will make the repeal permanent or if the estate tax will be resurrected in a decade's time. There are other complications. For example, the gift tax is to remain in place when the estate tax disappears, which reduces the current tax advantage of giving away assets that might appreciate during one's lifetime. On average, only about 2 percent of all estates are subject to the tax every year, and that figure is certain to drop with the higher exemptions.