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Congress wants to end the federal estate tax. That's the tax paid when children and others inherit a large amount of money.

President Clinton vetoed repeal, saying it was merely a special break for the rich. President Bush favors repeal or at least a big reduction in the tax. So conditions currently favor a reduction, at the very least.

Two questions arise: Would you be affected by an estate-tax cut, and if so, is there something you should be doing now?

The first thing to know is that few Americans pay estate taxes. This fact is widely misunderstood.

Opponents of the tax cut renamed it the "death tax," leading many people to believe it's levied on everyone at death.

Some Americans have purchased cash-value life insurance to offset this tax when in fact they will never owe it. They also may have started unnecessary trusts.

Here are the actual rules today:

1. There is zero tax at death on money left to a spouse or a charity.

2. You are not taxed on the total amount of your assets. The tax applies to your "estate." Essentially, that's the net worth that you pass to heirs -- the value of your assets, minus your debts and certain expenses.

3. Only larger estates are taxed. Currently, singles pay on net worth exceeding $675,000 (rising to $1 million in 2006). A married couple with a simple estate plan can exempt $1.35 million from the tax (rising to $2 million in 2006). Farms and small businesses can exempt even more.

Only 2 percent of estates pay the federal estate tax. Almost all heirs receive their inheritance estate-tax free. So before you worry about this tax, find out if you're going to owe it.

If you're among the few who will indeed owe the tax, the next question is what Congress will actually do and how soon it will be done.

The Republican majority backs total estate-tax repeal, even for billionaires.

Many Democrats and some Republicans favor reducing the top bracket (55 percent) and raising the exemption. If estates worth, say, $4 million were exempt, hardly anyone would pay.

Now let's go back to the people who buy cash-value life insurance, to cover the tax. Will you still want it, if your estate tax is reduced or eliminated?

There are three good reasons to buy a cash-value policy, even if you won't owe any estate taxes, says fee-only life insurance adviser Peter Katt, in Mattawan, Mich.:

If you own a business, life insurance helps your partners buy your share from your family after your death, giving your family extra cash.

If you want to leave a business to just one of your children (say, because he or she operates it), life insurance can provide the other children with an equal sum.

If you have money on hand that you know you'll never need, you could use it to invest in a policy for your kids. They'd get the tax-free payout at your death.

If none of these conditions apply, your need for cash-value coverage may vanish.

While waiting to find out if the estate tax will be repealed or reduced, consider buying term insurance that's convertible to a cash-value policy, says fee-only life insurance adviser Glenn Daily of New York. Term coverage will tide you over the transition.

Term policies often have to be converted no later than age 70. If you still need coverage past that age, you'd need to set money aside each year to pay the higher premiums that your cash-value coverage will cost.

Convertible term also preserves your option to switch to a cash-value policy if the tax is repealed then reinstated, says Ted Kurlowicz, estate-planning professor at the American College in Bryn Mawr, Pa.

If you already own a cash-value policy, what should you do with it if your estate tax is repealed? Keep it if your health is poor or if you want a conservative investment for your kids, Katt says.

You'd also want to keep it if its current cash value is worth more than the premiums you paid. If you cash the policy in, you'll owe an income tax.

Life insurance agents think they'll sell plenty of cash-value life insurance, even if federal estate taxes are repealed. There may be income-tax reasons to buy, says Dennis Merideth of Tuscon, Ariz., president of the National Association of Insurance and Financial Advisors. There may be state inheritance taxes.

But wait and see. We don't yet know what's going to change.

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