INTRODUCTION

The estate and gift tax provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "Tax Relief Act") required more than 10,400 words and comprised some 25 percent of the new law's bulk. The new law has many details and complexities, far too many to cover thoroughly within this material. What I have done, however, is to present an "executive summary" so you can be informed about what principal changes you should make in your present estate plan.

Opportunities and Pitfalls

You have heard by now about the sweeping changes in the federal tax laws, including the gradual phase-out of the estate tax (sometimes called the "death tax"). You may be wondering how your estate planning should change because of the new law or whether you even need to plan your estate any longer. The fact is, estate planning involved much more than just drafting wills and trusts so that you can reduce your estate tax bill. The purpose of the plan is also to arrange your assets and finances so that your wishes are carried out after your death and, perhaps just as importantly, to ensure that your accumulated wealth is preserved and increased during your life. Estate planning therefore involves incomes tax planning as well as estate and gift tax planning, and the crafting of legal strategies that will accomplish your goals most effectively. Hidden in the new law are both traps and opportunities; with careful planning, you can accommodate both.

The Tax Relief Act makes estate planning more crucial than ever because of the new law's complexity and resulting uncertainty. Instead of being instantly repealed, the estate tax will phase out gradually over a 9 year period. Although it is scheduled for full repeal in 2010, unless further Congressional action is taken, it will be automatically reinstated in 2011. That roller coaster ride will create difficulties for estate planners.

Don't Wait

The cause for the urgency in contacting your estate planning advisor is threefold.

First, you never know when tragedy might strike. For example, if you become legally incompetent for medical reasons, unless durable powers of attorney are in place, you lose the power to revise your estate plans. Instead, your plans are locked into the course of action decided upon when you set them up, before the dramatic changes brought about the Tax Relief Act.

Second, your current estate plan could be counterproductive under the changing estate tax rules. Some aggressive "marital clauses" in existing wills or testamentary trusts are such that if the surviving spouse is not the beneficiary of a trust containing the exclusion amount, a spouse could end up with nothing and the children with everything, when interpreted in light of the higher exclusion amounts provided under the new law. Because of the way the new rules concerning carryover basis (discussed below) will apply only to certain inherited assets and not others when (and if) repeal becomes effective, your heirs could end up at odds with one another. Plans for passing on family businesses could especially be jeopardized.

Third, each year that you delay setting new estate plans into motion means missed opportunities. Through the magic of compounding interest and tax savings, the years 2001 and 2002 may prove to be the most important two years for you within the next 10 year period to enhance the eventual benefit of your estate to your heirs and beneficiaries.

Warning: Estate planning is not just about the estate tax anymore. Building an estate to maximize its value to you while you are living, and then to your heirs and beneficiaries, requires the creative application of many tax strategies. Many techniques currently being used need to be revised, enhanced or discarded because of the new law.

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