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Policy Family-owned small businesses should pass to heirs without estate taxes being imposed. Background The Economic Growth and Tax Relief Reconciliation Act of 2001 phases down the estate tax until it is repealed in 2010. As of 2010 no tax would be assessed on an estate, and property in the estate would pass to the heirs without tax consequences until the heirs sell the inherited property. Upon sale, the assets would be subject to capital gains taxes. The current step up in basis that increases the basis of inherited assets would remain in effect for the first $1.3 million in assets transferred upon death and an additional $3 million in assets for a surviving spouse. As a result, the basis of assets transferred to a surviving spouse could be increased by a total of $4.3 million without being subject to any capital gains taxes. These amounts are adjusted annually for inflation. Assets not covered by the step up in basis would have the same basis in the hands of heirs as the assets had prior to the death of the owner. According to the schedule in the Act, in 2002 the unified estate and gift tax credit was increased to $1 million per person. In 2004, the unified credit was increased to $1.5 million and then to $2 million in 2006. In 2009, the unified credit is increased to $3.5 million. In 2002, the surtax and rates above 50 percent were repealed. From 2003 through 2007, the estate tax rates were reduced one percentage point to bring the rate down to 45 percent in 2009. In 2010, the estate and generation skipping transfer taxes are repealed. The gift tax remains in place but rates are reduced to a maximum of 35 percent. In 2004, the qualified family owned business deduction was repealed. In 2011, the estate tax repeal will sunset and the rate will revert back to its current form prior to the enactment of the 2001 act. Solution Seek and support legislation to make the repeal of the estate tax permanent.