Estate and Gift Tax Reform Act of 1981

Estate and Gift Tax Reform Act of 1981 - Amends the Internal Revenue Code to increase the unified credit against the estate and gift taxes from $47,000 to $155,800 by specified annual increments through 1985. Provides for a yearly inflation adjustment of the amount of such credit.

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

Increases from $3,000 to $6,000 the annual gift tax exclusion.

Specifies that the rental by a decedent to a member of the decedent's family of real property otherwise qualified for the special use valuation shall neither prevent its qualification as such nor require to be imposed the additional estate tax on dispositions and failures to use for a qualified use.

Qualifies estates of decedents who were disabled or retired for the special use valuation 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 under title II (Old Age, Survivors and Disability Insurance) of the Social Security Act. 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 decendent's death. Qualifies the owner of a woodland for the special use valuation if the owner or a member of the owner's family actively managed the property for ten years prior to the owner'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. Allows valuation based on net crop share rentals as an alternative method of valuing farms. 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.