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ESTATE AND GIFT TAX CONSIDERATIONSNotwithstanding the foregoing, however, legislation signed into law on June 7,2001, radically altered this aspect of the law. 150 Generally, the estate and gift taxesare to be reduced between 2002 and 2009, with the estate tax scheduled to berestored in 2010. In 2002, the rates in excess of 50 percent were repealed. Also, in2002, the unified credit application exclusion amount was increased to $1 million.The phase-out of the estate tax is to proceed as follows: (1) In 2003, the estateand gift tax rates in excess of 49 percent were repealed. (2) In 2004, the estate andgift tax rates in excess of 48 percent were repealed, and the unified credit exemptionamount for estate tax purposes was increased to $1.5 million (leaving theexemption amount for gift tax purposes at $1 million). (3) In 2005, the estate andgift tax rates in excess of 47 percent are to be repealed. (4) In 2006, the estate andgift tax rates in excess of 46 percent are to be repealed, and the unified creditexemption amount for estate tax purposes will increase to $2 million. (5) In 2007,the estate and gift tax rates in excess of 45 percent are to be repealed. (6) In 2009, theunified credit exemption amount will increase to $3.5 million. (7) In 2010, the estatetax is to be repealed. Thereafter, the estate tax is to be reinstated, at the prior levels.§ 8.5 GENERATION-SKIPPING TRANSFER TAXAnother transfer tax was added to the federal tax system in 1976. 151 The purposeof this tax is to curb a perceived abuse involving the use of trust vehicles inestate planning. It was subsequently retroactively repealed and replaced with arevised version for property transfers made after 1986.As will be seen, trusts can be used effectively as a means for passing wealthon to successive generations at minimum tax cost to the decedent’s estate.Indeed, one of the guiding principles of estate planning is the passing down ofwealth to “lower” or successive generations at a minimum tax cost.Because decedent’s estates are taxed on the value of their property, and trustsare taxed only on the income they generate, trusts have become convenient vehicles,or depositories, for generational wealth. A decedent’s wealth (denominatedfirst generation) can be transferred to a trust. The transfer may or may not incur atransfer tax. Typically, the trust retains the property (known as trust corpus orprincipal) and distributes income to the next generational level (denominated secondgeneration), typically the sons and daughters of the decedent. Tax is paid onthe trust income, but not the trust property. The trust property is not included inthe estate of a child of the decedent upon the child’s death. Therefore, there is noestate tax at the second generational level. The trust, upon the death of a child ofthe decedent, typically distributes its property to the grandchildren of the decedent(denominated third generation) free of transfer tax. Through the use of a trustvehicle, property ownership skips a generation and that generation’s level ofestate transfer tax.To curb generation-skipping transfers of wealth through use of trusts, andpreserve the integrity of uniform generation-to-generation transfer taxes, thegeneration-skipping transfer tax was adopted.150 Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, 106th Cong., 1st Sess.(2001), §§ 501, 511, 521 [EGTRRA].151 IRC § 2601 et seq. 246