There has been a lot of talk lately about a repeal of the estate tax. President Bush has promised to repeal the “death tax,” claiming that it taxes earnings twice and is patently unfair. Many Americans appear to agree with the President and support a repeal of the estate tax. But what is the estate tax? How does it work and who does it affect?

As an Elder Law attorney, a large portion of my practice is dedicated to estate planning. Whether Congress decides to repeal the federal estate tax or not, people will still need to put a proper estate plan in place. “Estate planning” deals with the proper administration and distribution of your affairs after your death. An estate plan, allows you to specify who is to receive what share of your assets, how those assets are to be used and for whose benefit, who should be the guardian of minor or disabled children, and who should bear the burden of any debts you may owe at the time of your death.

All of those planning needs will exist whether or not a federal estate tax exists. In fact, the vast majority of Americans aren’t affected by the federal estate tax or its impact upon them can be eliminated with a relatively simple estate “tax planning” technique. The estate tax is more precisely thought of as a transfer tax, not a death tax.

Everyone gets a credit of $675,000 (scheduled to rise to $1,000,000 by the year 2006) against life time gifts and taxes on property that passes to other individuals at time of death, i.e., estate tax. There are other deductions against these taxes, for example: an unlimited marital deduction for gifts and assets passing upon death, a $10,000 annual exclusion per donee for gifts, gifts for tuition and medical expenses, and a charitable deduction.

In all, people can “transfer” – whether through gifts or their estates – $675,000 or more without any transfer tax consequences at all. For instances, if Mary had $900,000 and three children, she could gift $30,000 a year to her three children with no adverse affect on her $675,000 credit. If each of Mary’s three children had a child, Mary’s grandchildren, Mary could pay their tuition at college or could set up what’s called a 529(b) plan, in which her “gifts” would grow tax deferred and would pay for the grandchildrens’ tuition, books, fees, room and board. On top of all this, Mary would still get the $675,000 credit against estate tax, at time of death. And, if Mary lives until 2006, the credit against estate tax would be $1,000,000, so Mary could have died with her full $900,000 and paid no tax at all.

For married individuals, the tax savings can double with proper planning. A relatively simple estate planning technique called a “credit shelter trust” allows married couples to shelter up to $1,350,000 currently, and by the year 2006, a married couple could shelter up to $2,000,000. When you add this amount to the simple gifting techniques mentioned above, a married couple who engages in tax planning in their late 60’s and lives until they are 80 could save upwards of $3,000,000.

So, who would benefit from a repeal of the estate tax. Certainly, not the average American.

Estate planning doesn’t have to be intimidating — it’s really about making sure your wishes are carried out and your family is protected. Whether you start with a will, a trust, or powers of attorney, taking steps now brings peace of mind later.