Family Enterprise Estate and Gift Tax Equity Act

Family Enterprise Estate and Gift Tax Equity Act - Amends the Internal Revenue Code to reduce the estate and gift tax rates beginning in 1981. Increases the unified credit against the estate and gift taxes from $47,000 to $124,750 by specified annual increments through 1985. Increases from $175,000 to $600,000, by specified annual increments through 1985, the minimum gross estate requirement for filing of a return.

Repeals the existing limitations on the marital deduction for gift and estate taxes.

Increases from $3,000 to $10,000 the annual gift tax exclusion.

Qualifies estates of decedents who were disabled or retired for the special valuation of certain farms based on use if such decedents materially participated in the operation of the farm for five out of eight years preceding the year in which they became disabled or eligible for disability benefits. Permits the spouse of a decedent to use such valuation if the spouse has managed the farm or business for ten years preceding the decedent's death or takes over active management upon the decedent's death. Qualifies woodlands for the special use valuation if the decedent or a member of the decedent's family owned and farmed the property for ten years prior to the decedent's death.

Reduces from 15 to ten years the length of time a qualified property must be held and put to a qualified use following the decedent's death before it can be disposed of without incurring a recapture of estate tax benefits.

Permits active management rather than material participation as a test for qualification of the estate for spouses, children under 21, students, and disabled individuals who receive property from a decedent who qualified for special use valuation.

Repeals the $500,000 limitation on the reduction of the value of qualified real property permitted by the special use valuation.

Allows the like kind exchange of property without loss of special use valuation eligibility. Revises the method of valuing farms by providing that the basis of such valuation shall be the average annual gross rental value. Authorizes the step-up in basis of such assets.

Repeals the requirement that an heir elect special treatment for involuntary conversions of qualified real property, thus making such treatment automatic upon such conversion.

States that gifts made within three years of a decedent's death shall be valued as of the time of transfer rather than as of the date of death.

Authorizes an individual to elect to pay a gift tax rather than use the unified tax credit.

Modifies the alternate extension of time for payment of the estate tax where the estate consists largely of an interest in a closely held business to: (1) allow an installment payment election if the value of the interest in the closely held business is either 35 percent of the value of the gross estate or 50 percent of the taxable estate; (2) increase to 50 percent the value of an interest disposed of which will accelerate the payment of tax; and (3) permit payment, but with a penalty, of an installment within six months after the due date.

Allows a disclaimer of an interest in property for estate tax purposes in specified circumstances where such disclaimer does not result in the passing of the interest concerned under the applicable State law.