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Show Estate Laws Help Businessmen Federal estate tax law changes enacted by the 1981 Congress should aid small businesses and family-owned farms according to a study just completed by Utah Foundation, the private tax research organizaton. In addition to reducing the federal income tax, the 1931 tax cut legislation will phase out the federal estate tax on most small and medium-sized estates. Under the new law, individuals will be able to make larger tax-free gifts while alive and leave larger estates to their heirs upon their death. By 1987, when all of the provisions of the new law become fully operative, it is estimated that fewer than 1 percent of all estates in the nation will be taxed. According to the Foundation report, inflation has increased the value of many family-owned businesses and farms, making them liable for a substantial federal estate tax. At the death of the owner or major partner, the family often had to dispose of the property at a fraction of its true value in order to meet the federal estate tax obligation. Such a forced sale freqently resulted in a breakup of the business, causing serious dislocations in the local economy. To correct some of these problems, the new tax bill passed by Congress makes basic reforms in the federal estate and gift tax law. Included among some of the more significant changes are the following: 1. Over the next six years the credit against the estate and gift tax will be gradually raised. This will have the effect of increasing the tax-free gift an bequest threshold as follows: 1981, $175,625; 1982, $225,000; 1983, $275,000; 1984, $325,000; 1985, $400,000; 1986, $500,000; 1987, $600,000. 2. Beginning with next year, a surviving spouse will be able to inherit an estate of any size without paying an estate tax. At the present time, only one-half of an estate of $250,000, whichever is larger, can be left to a surviving spouse, tax free. 3. Starting in 1982, the annual gift tax exemption is increased from 3,000 to $10,000 per year. This means that a husband and wife each can give a child $10,000, or a total of $20,000 per year without having to pay a tax on the gift. 4. The top tax on an estate will be lowered from 70 percent to 50 percent in four steps between 1982 and 1985. Rates above 50 percent currently apply to taxable estates of more than $2,500,000. 5. Real property passed on to family members for use in a closely-held business or farm can be valued for estate tax purposes according to its present use rather than its highest and best use. There has been a $500,000 limitation on the spread between the two values for estate tax purposes. The new law increases this spread to $750,000 in two steps by 1983. 6. Gift transfers to persons for medical expenses or school tuition can be made without incurring a tax under the new law. Foundation analysts conclude that the new legislation will have some far-reaching effects on estate and insurance planning in the years immediately ahead. The tax savings to the public from the new federal estate and gift tax will total $5.6 billion per year by fiscal 1986. |
