The Taxpayer Relief Act of 1997 ("TRA '97")

The Taxpayer Relief Act of 1997 ("TRA '97") contains important provisions that affect estate and gift tax planning. The new law increases the old estate and gift tax exemption equivalent of $600,000 to $1,000,000, but the increase is phased in over 10 years (see Exemption Chart). In addition, a special exclusion for family-owned businesses creates a $1.3 million exemption.

Unlike the increase in the regular exemption, the family business exemption is not phased in, but applies to any family business owner dying on or after January 1, 1998. The rules for qualifying for the family business exemption are extremely complicated. If the heirs sell the business within 10 years after death, the tax benefits are lost and there is a "recapture" of the estate taxes that would have been due under the regular exemption rule.