¹For a general discussion of the EGTRRA estate tax provisions, see Blattmachr and Detzel, "Estate Planning Changes in the 2001 Tax Act—More Than You Can Count," 95 J. of Tax'n 74 (August 2001); Sawyers and Whitlock, "Estates, Trusts & Gifts: Post-EGTRRA Analysis and Planning," 32 The Tax Adviser 822 (December 2001).

²See Secs. 2001(c)(2)(B) and 2210(a), as amended by EGTRRA Sections 511(b) and 501(a).

³See Sec. 2010(c), as amended by EGTRRA Section 521(a).

⁴EGTRRA Section 901(b) provides that after 2010, the Code will be applied and administered as if the EGTRRA had not been enacted.

⁵See Sec. 2505(a)(1), as amended by EGTRRA Section 521(b); EGTRRA Section 901(b).

⁶The gift tax was originally instituted to prevent taxpayers from making lifetime transfers to avoid the estate tax.

⁷The Academy of Multidisciplinary Practice, Inc., Panel Discussion of the Tax Act of 2001 (6/13/01) (hereinafter, "Panel Discussion"), available at www.mdpacademy.com.

⁸See Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 1836 (5/26/01).

⁹See Sec. 1022(a), as added by EGTRRA Section 542(a); Sec. 1014(f), as amended by EGTRRA Section 541.

¹⁰Sec. 7701(b)(47) defines "executor" as "the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent."

¹¹Sec. 1022(b), as added by EGTRRA Section 542(a). The $1.3 million aggregate basis increase may be increased by (1) any capital loss carryover (Sec. 1212(b)) or net operating loss carryover (Sec. 172) that, but for the decedent's death, would have carried forward to a future tax year(s); and (2) the sum of any losses allowable under Sec. 165 had the decedent sold the property immediately before death.

¹²Sec. 1022(d), as added by EGTRRA Section 542. A discussion of property eligible for either step-up is beyond the scope of this article. However, this is an area in which practitioners must change their thinking entirely. For example, the EGTRRA treats property in a marital trust over which the surviving spouse has a lifetime general power of appointment as not owned by that spouse for purposes of the $3 million spousal property basis increase. Thus, many existing plans risk potential loss of this step-up for marital trust property. See Esperti, Peterson, Cahoone and Mintz, "The Impact of the Economic Growth and Tax Relief Reconciliation Act of 2001 on Existing Planning," 56 J. of Fin. Svce. Prof'ls 37 (March 2002).

¹³To determine the value of the gift for gift tax purposes, the IRS uses the applicable Federal rate (the Sec. 7520 rate) in effect at the time of trust funding (the assumed growth rate). If the GRAT or QPRT assets appreciate faster than the Sec. 7520 rate, the grantor can leverage the transfer to beneficiaries. In other words, the lower the Sec. 7520 rate at the time of trust creation, the more likely that the GRAT or QPRT will transfer assets with a value greater than the gift tax paid.

The Sec. 7520 mid-term rate for June 2002 was 5.8%. GRATs are more attractive at low interest rates; a low Sec. 7520 rate reduces the gift tax value of the remainder interest. It makes QPRTs less attractive, however, because a low Sec. 7520 rate reduces the value of the property transferred out of the grantor's estate.

¹⁴A detailed discussion of GRATs or QPRTs is beyond the scope of this article; see Esperti and Peterson, Irrevocable Trusts: Analysis with Forms (Warren Gorham & Lamont, 1998). Clients with sufficient wealth should take advantage of the $1 million gift tax exclusion as soon as possible; techniques that leverage the gift tax exclusion (including GRATs and QPRTs) will play a significant role for these clients. Moreover, grantors can now create "zeroed-out" GRATs (GRATs with no gift tax consequences). In Audrey J. Walton, 115 TC 589 (2000) (see Whitlock and McNamara, "Significant Recent Developments in Estate Planning (Part II)," 32 The Tax Adviser 618 (September 2001)), the Tax Court held invalid Example 5 of Regs. Sec. 25.2702-3(e), which prohibited zeroed-out GRATs. As a result, GRATs should become an even more significant planning tool after the EGTRRA.

¹⁵With level term-life insurance, the annual premiums remain the same for a specified number of years (e.g., five, 10, 15, 20 or 30). The initial premium is higher than with annual renewable-term insurance, but the insured is willing to pay more in the early years in exchange for stable premiums.

¹⁶Permanent life insurance is designed to last the insured's life, rather than a term of years. As long as the policy owner pays the necessary premiums, the death benefit will be available.

¹⁷Variable universal-life policies are similar to universal-life policies (see note 20 infra), with one major exception. With the former, the policy owner can allocate the policy's cash value among a number of equity (stocks) and fixed income (bonds) sub-accounts for the highest return consistent with the owner's risk tolerance. These sub-accounts operate very much like mutual fund accounts; unlike other types of permanent insurance, assets in the sub-accounts are not subject to the claims of the insurance company's general creditors.

¹⁸See Panel Discussion, note 7 supra.

¹⁹For policies issued after 1984, a withdrawal in which the policy owner receives cash in exchange for a reduction in policy benefits is subject to income tax under Sec. 7702(f)(7)(B), if made within 15 years of policy issuance. After 15 years, there is no immediate income taxation on a policy withdrawal; the general rule applies. The 15-year rule does not apply to policy loans.

²⁰With universal life insurance, the policy owner purchases a permanent policy based on computer projections of future premiums, cash values and death benefits. After the initial premium payment, the owner can pay premiums at any time, in virtually any amount, subject to certain conditions. The owner can adjust the death benefit up or down. If annual premiums paid exceed expense and mortality charges, the excess is deposited in a cash-value accumulation account and grows at the rate set forth in the contract. As long as the policy has cash value, the death benefit will continue. If the policy cash value reaches zero, however, the policy lapses.