In a rare weekend session, Congress approved a compromise between the House and Senate versions of what will be the largest tax cut in two decades. Though the compromise-called H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act of 2001-is smaller than the cuts President Bush had wanted, it contains most of his proposals, including phase-out of the estate tax and generation-skipping transfer tax. But the gift tax will not be repealed, and the final bill raises some serious questions as to how long the estate tax repeal will last after being phased in.

From 2002 through 2009, the estate and gift tax rates and unified credit effective exemption amount are as shown in the table below. In 2010, the estate and generation-skipping transfer taxes are repealed. Also beginning in 2010, the top gift tax rate will be the top individual income tax rate as provided under the bill (35%).

The conference agreement also expands the availability of qualified conservation easements by eliminating the requirement that the land be located within a certain distance from a metropolitan area, national park, wilderness area, or Urban National Forest. Thus, any land that is located in the United States or its possessions may qualify as a conservation easement.

Sunset in 2011?

Proponents of estate tax repeal are touting these tax cuts as a major victory. However, according to OMB Watch, a strong opponent of repeal, it is only a "symbolic victory." The full repeal of the estate tax does not occur under the bill until 2010, but the bill will "sunset" on January 1, 2011. In other words, unless Congress takes further action to reenact the bill, its provisions will expire in 2011. If this happens, full estate tax repeal will last only one year.

OMB Watch claims, "At best this is a rhetorical victory for those opposed to the estate tax." They may be right. The only certainty in this situation is uncertainty itself. For professionals who counsel clients in estate planning, these may prove confusing times, and flexibility may become key to a successful estate plan for the next several years.

Pension & IRA Provisions

The conference agreement also makes extensive changes to the rules relating to IRAs and qualified pension plans. Among the changes included in the conference agreement are the following provisions:

Increased contribution limits and catch-up contributions to IRAs;

Expanding coverage, including increased contribution and benefit limits for qualified plans, increases in elective deferral limits, and a credit for certain elective deferrals and contributions;

Enhanced fairness for women, including additional catch-up contributions for individuals over age 50;

Increased portability for plan participants;

Strengthened pension security and enforcement; and

Reduced regulatory burdens.