H. R. 2488—47 
(1) IN GENERAL.—The table contained in section 2001(c)(1) 
is amended by striking the two highest brackets and inserting 
the following: 
‘‘Over $2,500,000 ................................
$1,025,800, plus 50% of the excess over 
$2,500,000.’’. 
(2) PHASE-IN OF REDUCED RATE.—Subsection (c) of section 
2001 is amended by adding at the end the following new para-
graph: 
‘‘(3) PHASE-IN OF REDUCED RATE.—In the case of decedents 
dying, and gifts made, during 2001, the last item in the table 
contained in paragraph (1) shall be applied by substituting 
‘53%’ for ‘50%’.’’. 
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—Subsection 
(c) of section 2001 is amended by striking paragraph (2) and redesig-
nating paragraph (3), as added by subsection (a), as paragraph 
(2). 
(c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—Subsection (c) 
of section 2001, as so amended, is amended by adding at the 
end the following new paragraph: 
‘‘(3) PHASEDOWN
OF
TAX.—In the case of estates of 
decedents dying, and gifts made, during any calendar year 
after 2004 and before 2009— 
‘‘(A) IN GENERAL.—Except as provided in subparagraph 
(C), the tentative tax under this subsection shall be deter-
mined by using a table prescribed by the Secretary (in 
lieu of using the table contained in paragraph (1)) which 
is the same as such table; except that— 
‘‘(i) each of the rates of tax shall be reduced by 
the number of percentage points determined under 
subparagraph (B), and 
‘‘(ii) the amounts setting forth the tax shall be 
adjusted to the extent necessary to reflect the adjust-
ments under clause (i). 
‘‘(B) PERCENTAGE POINTS OF REDUCTION.— 
The number of
‘‘For calendar year: 
percentage points is: 
2003 .............................................................................................
1.0
2004 .............................................................................................
2.0
2005 .............................................................................................
3.0
2006 .............................................................................................
4.0
2007 .............................................................................................
5.5
2008 .............................................................................................
7.5. 
‘‘(C) COORDINATION
WITH
INCOME
TAX
RATES.—The 
reductions under subparagraph (A)— 
‘‘(i) shall not reduce any rate under paragraph 
(1) below the lowest rate in section 1(c), and 
‘‘(ii) shall not reduce the highest rate under para-
graph (1) below the highest rate in section 1(c). 
‘‘(D) COORDINATION
WITH
CREDIT
FOR
STATE
DEATH 
TAXES.—Rules similar to the rules of subparagraph (A) 
shall apply to the table contained in section 2011(b) except 
that the Secretary shall prescribe percentage point reduc-
tions which maintain the proportionate relationship (as 
in effect before any reduction under this paragraph) 
between the credit under section 2011 and the tax rates 
under subsection (c).’’. 
(d) EFFECTIVE DATES.— 
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H. R. 2488—48 
(1) SUBSECTIONS (a) AND (b).—The amendments made by 
subsections (a) and (b) shall apply to estates of decedents dying, 
and gifts made, after December 31, 2000. 
(2) SUBSECTION (c).—The amendment made by subsection 
(c) shall apply to estates of decedents dying, and gifts made, 
after December 31, 2004. 
Subtitle C—Unified Credit Replaced With 
Unified Exemption Amount 
SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES 
REPLACED WITH UNIFIED EXEMPTION AMOUNT. 
(a) IN GENERAL.— 
(1) ESTATE TAX.—Part IV of subchapter A of chapter 11 
is amended by inserting after section 2051 the following new 
section: 
‘‘SEC. 2052. EXEMPTION. 
‘‘(a) IN GENERAL.—For purposes of the tax imposed by section 
2001, the value of the taxable estate shall be determined by 
deducting from the value of the gross estate an amount equal 
to the excess (if any) of— 
‘‘(1) the exemption amount for the calendar year in which 
the decedent died, over 
‘‘(2) the sum of— 
‘‘(A) the aggregate amount allowed as an exemption 
under section 2521 with respect to gifts made by the 
decedent after December 31, 2000, and 
‘‘(B) the aggregate amount of gifts made by the 
decedent for which credit was allowed by section 2505 
(as in effect on the day before the date of the enactment 
of the Taxpayer Refund and Relief Act of 1999). 
Gifts which are includible in the gross estate of the decedent shall 
not be taken into account in determining the amounts under para-
graph (2). 
‘‘(b) EXEMPTION AMOUNT.—For purposes of subsection (a), the 
term ‘exemption amount’ means the amount determined in accord-
ance with the following table: 
‘‘In the case of 
The exemption 
calendar year: 
amount is: 
2001 .................................................................................................
$675,000
2002 and 2003 .................................................................................
$700,000
2004 .................................................................................................
$850,000
2005 .................................................................................................
$950,000
2006 or thereafter ...........................................................................
$1,000,000.’’. 
(2) GIFT
TAX.—Subchapter C of chapter 12 (relating to 
deductions) is amended by inserting before section 2522 the 
following new section: 
‘‘SEC. 2521. EXEMPTION. 
‘‘In computing taxable gifts for any calendar year, there shall 
be allowed as a deduction in the case of a citizen or resident 
of the United States an amount equal to the excess of— 
‘‘(1) the exemption amount determined under section 2052 
for such calendar year, over 
‘‘(2) the sum of— 
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H. R. 2488—49 
‘‘(A) the aggregate amount allowed as an exemption 
under this section for all preceding calendar years after 
2000, and 
‘‘(B) the aggregate amount of gifts for which credit 
was allowed by section 2505 (as in effect on the day before 
the date of the enactment of the Taxpayer Refund and 
Relief Act of 1999).’’. 
(b) REPEAL OF UNIFIED CREDITS.— 
(1) Section 2010 (relating to unified credit against estate 
tax) is hereby repealed. 
(2) Section 2505 (relating to unified credit against gift 
tax) is hereby repealed. 
(c) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of section 2001(b)(1) is amended by 
inserting before the comma ‘‘reduced by the amount described 
in section 2052(a)(2)(B)’’. 
(2)(A) Subsection (b) of section 2011 is amended— 
(i) by striking ‘‘adjusted’’ in the table, and 
(ii) by striking the last sentence. 
(B) Subsection (f ) of section 2011 is amended by striking 
‘‘, reduced by the amount of the unified credit provided by 
section 2010’’. 
(3) Subsection (a) of section 2012 is amended by striking 
‘‘and the unified credit provided by section 2010’’. 
(4)(A) Subsection (b) of section 2013 is amended by 
inserting before the period at the end of the first sentence 
‘‘and increased by the exemption allowed under section 2052 
or 2106(a)(4) (or the corresponding provisions of prior law) 
in determining the taxable estate of the transferor for purposes 
of the estate tax’’. 
(B) Subparagraph (A) of section 2013(c)(1) is amended by 
striking ‘‘2010,’’. 
(5) Paragraph (2) of section 2014(b) is amended by striking 
‘‘2010,’’. 
(6) Clause (ii) of section 2056A(b)(12)(C) is amended to 
read as follows: 
‘‘(ii) to treat any reduction in the tax imposed 
by paragraph (1)(A) by reason of the credit allowable 
under section 2010 (as in effect on the day before 
the date of the enactment of the Taxpayer Refund 
and Relief Act of 1999) or the exemption allowable 
under section 2052 with respect to the decedent as 
a credit under section 2505 (as so in effect) or exemp-
tion under section 2521 (as the case may be) allowable 
to such surviving spouse for purposes of determining 
the amount of the exemption allowable under section 
2521 with respect to taxable gifts made by the sur-
viving spouse during the year in which the spouse 
becomes a citizen or any subsequent year,’’. 
(7) Paragraph (3) of section 2057(a) is amended to read 
as follows: 
‘‘(3) COORDINATION WITH EXEMPTION AMOUNT.— 
‘‘(A) IN GENERAL.—Except as provided in subparagraph 
(B), if this section applies to an estate, the exemption 
amount under section 2052 shall be $625,000. 
‘‘(B) INCREASE IN EXEMPTION AMOUNT IF DEDUCTION 
IS LESS THAN $675,000.—If the deduction allowed by this 
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H. R. 2488—50 
section is less than $675,000, the amount of the exemption 
amount under section 2052 shall be increased (but not 
above the amount which would apply to the estate without 
regard to this section) by the excess of $675,000 over the 
amount of the deduction allowed.’’. 
(8)(A) Subparagraph (B) of section 2101(b)(1) is amended 
by inserting before the comma ‘‘reduced by the aggregate 
amount of gifts for which credit was allowed by section 2505 
(as in effect on the day before the date of the enactment 
of the Taxpayer Refund and Relief Act of 1999)’’ 
(B) Subsection (b) of section 2101 is amended by striking 
the last sentence. 
(9) Section 2102 is amended by striking subsection (c). 
(10) Subsection (a) of section 2106 is amended by adding 
at the end the following new paragraph: 
‘‘(4) EXEMPTION.— 
‘‘(A) IN GENERAL.—An exemption of $60,000. 
‘‘(B) RESIDENTS
OF
POSSESSIONS
OF
THE
UNITED 
STATES.—In the case of a decedent who is considered to 
be a nonresident not a citizen of the United States under 
section 2209, the exemption under this paragraph shall 
be the greater of— 
‘‘(i) $60,000, or 
‘‘(ii) that proportion of $175,000 which the value 
of that part of the decedent’s gross estate which at 
the time of his death is situated in the United States 
bears to the value of his entire gross estate wherever 
situated. 
‘‘(C) SPECIAL RULES.— 
‘‘(i) COORDINATION WITH TREATIES.—To the extent 
required under any treaty obligation of the United 
States, the exemption allowed under this paragraph 
shall be equal to the amount which bears the same 
ratio to the exemption amount under section 2052 (for 
the calendar year in which the decedent died) as the 
value of the part of the decedent’s gross estate which 
at the time of his death is situated in the United 
States bears to the value of his entire gross estate 
wherever situated. For purposes of the preceding sen-
tence, property shall not be treated as situated in 
the United States if such property is exempt from 
the tax imposed by this subchapter under any treaty 
obligation of the United States. 
‘‘(ii) COORDINATION WITH GIFT TAX EXEMPTION AND 
UNIFIED CREDIT.—If an exemption has been allowed 
under section 2521 (or a credit has been allowed under 
section 2505 as in effect on the day before the date 
of the enactment of the Taxpayer Refund and Relief 
Act of 1999) with respect to any gift made by the 
decedent, each dollar amount contained in subpara-
graph (A) or (B) or the exemption amount applicable 
under clause (i) of this subparagraph (whichever 
applies) shall be reduced by the exemption so allowed 
under 2521 (or, in the case of such a credit, by the 
amount of the gift for which the credit was so 
allowed).’’. 
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H. R. 2488—51 
(11)(A) Subsection (a) of section 2107 is amended by adding 
at the end the following new paragraph: 
‘‘(3) LIMITATION ON EXEMPTION AMOUNT.—Subparagraphs 
(B) and (C) of section 2106(a)(4) shall not apply in applying 
section 2106 for purposes of this section.’’. 
(B) Subsection (c) of section 2107 is amended— 
(i) by striking paragraph (1) and by redesignating 
paragraphs (2) and (3) as paragraphs (1) and (2), 
respectively, and 
(ii) by striking the second sentence of paragraph 
(2) (as so redesignated). 
(12) Section 2206 is amended by striking ‘‘the taxable 
estate’’ in the first sentence and inserting ‘‘the sum of the 
taxable estate and the amount of the exemption allowed under 
section 2052 or 2106(a)(4) in computing the taxable estate’’. 
(13) Section 2207 is amended by striking ‘‘the taxable 
estate’’ in the first sentence and inserting ‘‘the sum of the 
taxable estate and the amount of the exemption allowed under 
section 2052 or 2106(a)(4) in computing the taxable estate’’. 
(14) Subparagraph (B) of section 2207B(a)(1) is amended 
to read as follows: 
‘‘(B) the sum of the taxable estate and the amount 
of the exemption allowed under section 2052 or 2106(a)(4) 
in computing the taxable estate.’’. 
(15) Subsection (a) of section 2503 is amended by striking 
‘‘section 2522’’ and inserting ‘‘section 2521’’. 
(16) Paragraph (1) of section 6018(a) is amended by striking 
‘‘the applicable exclusion amount in effect under section 2010(c)’’ 
and inserting ‘‘the exemption amount under section 2052’’. 
(17) Subparagraph (A) of section 6601( j)(2) is amended 
to read as follows: 
‘‘(A) the amount of the tax which would be imposed 
by chapter 11 on an amount of taxable estate equal to 
$1,000,000, or’’. 
(18) The table of sections for part II of subchapter A of 
chapter 11 is amended by striking the item relating to section 
2010. 
(19) The table of sections for part IV of subchapter A 
of chapter 11 is amended by inserting after the item relating 
to section 2051 the following new item: 
‘‘Sec. 2052. Exemption.’’. 
(20) The table of sections for subchapter A of chapter 
12 is amended by striking the item relating to section 2505. 
(21) The table of sections for subchapter C of chapter 
12 is amended by inserting before the item relating to section 
2522 the following new item: 
‘‘Sec. 2521. Exemption.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section— 
(1) insofar as they relate to the tax imposed by chapter 
11 of the Internal Revenue Code of 1986, shall apply to estates 
of decedents dying after December 31, 2000, and 
(2) insofar as they relate to the tax imposed by chapter 
12 of such Code, shall apply to gifts made after December 
31, 2000. 
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H. R. 2488—52 
Subtitle D—Modifications of Generation- 
Skipping Transfer Tax 
SEC. 631. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME 
TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS. 
(a) IN GENERAL.—Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating sub-
section (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections: 
‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO 
GST TRUSTS.— 
‘‘(1) IN GENERAL.—If any individual makes an indirect skip 
during such individual’s lifetime, any unused portion of such 
individual’s GST exemption shall be allocated to the property 
transferred to the extent necessary to make the inclusion ratio 
for such property zero. If the amount of the indirect skip 
exceeds such unused portion, the entire unused portion shall 
be allocated to the property transferred. 
‘‘(2) UNUSED PORTION.—For purposes of paragraph (1), the 
unused portion of an individual’s GST exemption is that portion 
of such exemption which has not previously been— 
‘‘(A) allocated by such individual, 
‘‘(B) treated as allocated under subsection (b) with 
respect to a direct skip occurring during or before the 
calendar year in which the indirect skip is made, or 
‘‘(C) treated as allocated under paragraph (1) with 
respect to a prior indirect skip. 
‘‘(3) DEFINITIONS.— 
‘‘(A) INDIRECT SKIP.—For purposes of this subsection, 
the term ‘indirect skip’ means any transfer of property 
(other than a direct skip) subject to the tax imposed by 
chapter 12 made to a GST trust. 
‘‘(B) GST TRUST.—The term ‘GST trust’ means a trust 
that could have a generation-skipping transfer with respect 
to the transferor unless— 
‘‘(i) the trust instrument provides that more than 
25 percent of the trust corpus must be distributed 
to or may be withdrawn by 1 or more individuals 
who are non-skip persons— 
‘‘(I) before the date that the individual attains 
age 46, 
‘‘(II) on or before one or more dates specified 
in the trust instrument that will occur before the 
date that such individual attains age 46, or 
‘‘(III) upon the occurrence of an event that, 
in accordance with regulations prescribed by the 
Secretary, may reasonably be expected to occur 
before the date that such individual attains age 
46; 
‘‘(ii) the trust instrument provides that more than 
25 percent of the trust corpus must be distributed 
to or may be withdrawn by one or more individuals 
who are non-skip persons and who are living on the 
date of death of another person identified in the 
instrument (by name or by class) who is more than 
10 years older than such individuals; 
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H. R. 2488—53 
‘‘(iii) the trust instrument provides that, if one 
or more individuals who are non-skip persons die on 
or before a date or event described in clause (i) or 
(ii), more than 25 percent of the trust corpus either 
must be distributed to the estate or estates of one 
or more of such individuals or is subject to a general 
power of appointment exercisable by one or more of 
such individuals; 
‘‘(iv) the trust is a trust any portion of which 
would be included in the gross estate of a non-skip 
person (other than the transferor) if such person died 
immediately after the transfer; 
‘‘(v) the trust is a charitable lead annuity trust 
(within the meaning of section 2642(e)(3)(A)) or a chari-
table 
remainder 
annuity 
trust 
or 
a 
charitable 
remainder unitrust (within the meaning of section 
664(d)); or 
‘‘(vi) the trust is a trust with respect to which 
a deduction was allowed under section 2522 for the 
amount of an interest in the form of the right to 
receive annual payments of a fixed percentage of the 
net fair market value of the trust property (determined 
yearly) and which is required to pay principal to a 
non-skip person if such person is alive when the yearly 
payments for which the deduction was allowed termi-
nate. 
For purposes of this subparagraph, the value of transferred 
property shall not be considered to be includible in the 
gross estate of a non-skip person or subject to a right 
of withdrawal by reason of such person holding a right 
to withdraw so much of such property as does not exceed 
the amount referred to in section 2503(b) with respect 
to any transferor, and it shall be assumed that powers 
of appointment held by non-skip persons will not be exer-
cised. 
‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS.— 
For purposes of this subsection, an indirect skip to which section 
2642(f ) applies shall be deemed to have been made only at 
the close of the estate tax inclusion period. The fair market 
value of such transfer shall be the fair market value of the 
trust property at the close of the estate tax inclusion period. 
‘‘(5) APPLICABILITY AND EFFECT.— 
‘‘(A) IN GENERAL.—An individual— 
‘‘(i) may elect to have this subsection not apply 
to— 
‘‘(I) an indirect skip, or 
‘‘(II) any or all transfers made by such indi-
vidual to a particular trust, and 
‘‘(ii) may elect to treat any trust as a GST trust 
for purposes of this subsection with respect to any 
or all transfers made by such individual to such trust. 
‘‘(B) ELECTIONS.— 
‘‘(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS.— 
An election under subparagraph (A)(i)(I) shall be 
deemed to be timely if filed on a timely filed gift 
tax return for the calendar year in which the transfer 
was made or deemed to have been made pursuant 
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H. R. 2488—54 
to paragraph (4) or on such later date or dates as 
may be prescribed by the Secretary. 
‘‘(ii) OTHER ELECTIONS.—An election under clause 
(i)(II) or (ii) of subparagraph (A) may be made on 
a timely filed gift tax return for the calendar year 
for which the election is to become effective. 
‘‘(d) RETROACTIVE ALLOCATIONS.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a non-skip person has an interest or a future 
interest in a trust to which any transfer has been made, 
‘‘(B) such person— 
‘‘(i) is a lineal descendant of a grandparent of 
the transferor or of a grandparent of the transferor’s 
spouse or former spouse, and 
‘‘(ii) is assigned to a generation below the genera-
tion assignment of the transferor, and 
‘‘(C) such person predeceases the transferor, 
then the transferor may make an allocation of any of such 
transferor’s unused GST exemption to any previous transfer 
or transfers to the trust on a chronological basis. 
‘‘(2) SPECIAL
RULES.—If the allocation under paragraph 
(1) by the transferor is made on a gift tax return filed on 
or before the date prescribed by section 6075(b) for gifts made 
within the calendar year within which the non-skip person’s 
death occurred— 
‘‘(A) the value of such transfer or transfers for purposes 
of section 2642(a) shall be determined as if such allocation 
had been made on a timely filed gift tax return for each 
calendar year within which each transfer was made, 
‘‘(B) such allocation shall be effective immediately 
before such death, and 
‘‘(C) the amount of the transferor’s unused GST exemp-
tion available to be allocated shall be determined imme-
diately before such death. 
‘‘(3) FUTURE INTEREST.—For purposes of this subsection, 
a person has a future interest in a trust if the trust may 
permit income or corpus to be paid to such person on a date 
or dates in the future.’’. 
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 2632(b) 
is amended by striking ‘‘with respect to a direct skip’’ and inserting 
‘‘or subsection (c)(1)’’. 
(c) EFFECTIVE DATES.— 
(1) DEEMED ALLOCATION.—Section 2632(c) of the Internal 
Revenue Code of 1986 (as added by subsection (a)), and the 
amendment made by subsection (b), shall apply to transfers 
subject to chapter 11 or 12 made after December 31, 1999, 
and to estate tax inclusion periods ending after December 31, 
1999. 
(2) RETROACTIVE
ALLOCATIONS.—Section 2632(d) of the 
Internal Revenue Code of 1986 (as added by subsection (a)) 
shall apply to deaths of non-skip persons occurring after the 
date of the enactment of this Act. 
SEC. 632. SEVERING OF TRUSTS. 
(a) IN GENERAL.—Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following 
new paragraph: 
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H. R. 2488—55 
‘‘(3) SEVERING OF TRUSTS.— 
‘‘(A) IN GENERAL.—If a trust is severed in a qualified 
severance, the trusts resulting from such severance shall 
be treated as separate trusts thereafter for purposes of 
this chapter. 
‘‘(B) QUALIFIED SEVERANCE.—For purposes of subpara-
graph (A)— 
‘‘(i) IN GENERAL.—The term ‘qualified severance’ 
means the division of a single trust and the creation 
(by 
any 
means 
available 
under 
the 
governing 
instrument or under local law) of two or more trusts 
if— 
‘‘(I) the single trust was divided on a fractional 
basis, and 
‘‘(II) the terms of the new trusts, in the aggre-
gate, provide for the same succession of interests 
of beneficiaries as are provided in the original 
trust. 
‘‘(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN 
ZERO.—If a trust has an inclusion ratio of greater 
than zero and less than 1, a severance is a qualified 
severance only if the single trust is divided into two 
trusts, one of which receives a fractional share of the 
total value of all trust assets equal to the applicable 
fraction of the single trust immediately before the 
severance. In such case, the trust receiving such frac-
tional share shall have an inclusion ratio of zero and 
the other trust shall have an inclusion ratio of 1. 
‘‘(iii) REGULATIONS.—The term ‘qualified severance’ 
includes any other severance permitted under regula-
tions prescribed by the Secretary. 
‘‘(C) TIMING AND MANNER OF SEVERANCES.—A sever-
ance pursuant to this paragraph may be made at any 
time. The Secretary shall prescribe by forms or regulations 
the manner in which the qualified severance shall be 
reported to the Secretary.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to severances after the date of the enactment of this 
Act. 
SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES. 
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED 
ALLOCATION MADE.—Paragraph (1) of section 2642(b) (relating to 
valuation rules, etc.) is amended to read as follows: 
‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED 
ALLOCATION
MADE.—If the allocation of the GST exemption 
to any transfers of property is made on a gift tax return 
filed on or before the date prescribed by section 6075(b) for 
such transfer or is deemed to be made under section 2632 
(b)(1) or (c)(1)— 
‘‘(A) the value of such property for purposes of sub-
section (a) shall be its value as finally determined for 
purposes of chapter 12 (within the meaning of section 
2001(f )(2)), or, in the case of an allocation deemed to have 
been made at the close of an estate tax inclusion period, 
its value at the time of the close of the estate tax inclusion 
period, and 
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