A: The most important change in the taxation of estates is in the effective exemption amount. Until 1997, each taxpayer was allowed a lifetime credit against estate and gift taxes of $192,800. At the current rate schedule, this was equivalent to a $600,000 exemption from estate and gift taxes: this meant that taxpayers who gave no taxable gifts during the course of their lives would pay no tax on the first $600,000 of taxable estate. The 1997 Act raised the amount of the unified credit gradually over nine years. The following table shows how the credit amount will change between 1998 and 2006, when the effective exemption will reach its final amount of $1,000,000.

Tax Year	Credit Amount	Exemption Amount
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006	192,800 202,050 211,300 220,550 220,550 229,800 229,800 287,300 326,300 345,800	600,000 625,000 650,000 675,000 675,000 700,000 700,000 850,000 950,000 1,000,000

A second important change in the estate tax law has to do with the annual gift tax exclusion. Until 1997, each individual could give a total of $10,000 ($20,000 for married joint filers) per recipient in gifts without incurring any tax. But since this amount was not indexed for inflation, the real value of the $10,000 exclusion had been falling since 1976, when the $10,000 amount was set. The Taxpayer Relief Act indexes the $10,000 exclusion to the rate of inflation. This means that the real value of the gift exclusion in future years will remain exactly $10,000.

Last Updated 11/5/1998

Back to Frequently Asked Questions