This Week's Topic: 2004 ESTATE and GIFT TAX CHANGES

The following is a concise summary of the important estate and gift tax changes quoted from the Kiplinger Tax Letter dated January 2, 2004.

Fewer estates will be subject to federal estate tax this year. The estate tax exemption rises to $1.5 million, up by $500,000. But the lifetime gift tax exemption did not change...remains at $1 million.

An estate tax break for family-owned companies comes to an end. An exclusion of up to $300,000 for the value of closely held businesses applied only when the estate tax exemption was less than $1.3 million.

The credit for state death tax payments shrinks. For 2004, the federal crdit cannot exceed 25% of the amount that's paid to a state. After 2004, the credit will be converted into an estate tax deuction.

The top estate and gift tax rate falls to 48%, a drop of 1%. The reduction affects estates and gifts that are larger than $2 million.

Special estate tax valuation of real estate jumps this year. Up to $850,000 of farm or business realty can receive discount valuation.

More estate tax qualifies for an installment payment tax break. If a closely held business or businesses make up over 35% of an estate, as much as $532,200 of tax can be deferred with a low 2% interest rate.

The generation-skipping tax exemption soars to $1,500,000 i 2004. There's a higher floor in recipients of gifts from foreign donors. Donees needn't file a report with the IRS unless the gift exceds $12,097.

Larger tax-free gifts can be made to foreign spouses this year. Spouses who aren't citizens of the U.S. can be given as much as $114,000 without incurring gift tax. Remember that there's no gift tax liability for a transfer of any size if the spouse who receives it is a citizen.

The annual gift tax exclusion is unchanged..$11,000 per donee.