The Unified Credit is a credit against Federal Estate Taxes. The exemption equivalent is the amount of assets you can own without paying estate tax because of the application of the credit against your tax.
Effective January 1, 2002, the Unified Credit for Federal Estate Tax purposes was increased to the following amounts for the following years:
2002 $1,000,000
2003 $1,000,000
2004 $1,500,000
2005 $1,500,000
2006
$2,000,000
2007
$2,000,000
2008
$2,000,000
2009
$2,000,000
2010
$3,500,000
Please don't get too excited! :)
Remember that when this law was passed there was a huge surplus, a booming stock market and this was prior to September 11, 2002.
To say the least, things have changed since this law was passed. The surplus is gone and not likely to come back any time soon, the stock market is way down and not likely to rebound soon and also the events of September 11th make it clear that large amounts of money will have to be added to our federal budget for homeland security and military expenditures.
This all means that there is very likely to be a change to this law in the near future. Also, under this new law there is a sunset provision which means that all of the changes in the law, including the increase in the Unified Credit will disappear in 2010. Unless Congress acts between now and 2011, the law will revert back to current law in effect at the time this law was passed which had a $1,000,000 Unified Credit.
Conservative planners should plan on a $1,000,000 Unified Credit to be safe, because it is highly unlikely that the current law will stay in place as it exists today. Those who plan on the current law staying in place with its scheduled increases in Unified Credits, may be in store for a very rude awakening if and when the law changes or sunsets and reverts back to the $1,000,000 Unified Credit. I don't have a crystal ball, but I am advising clients to be conservative and not count on a unified credits above $1,000,000 to be in place at the time of their death.
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