Happy (for Some) 100th Anniversary to the Estate Tax

Your Guide to State, Local, Federal, Estate + International Taxation

Back in 1916, Congress wanted to boost U.S. revenues in case America joined in on World War I in Europe. Lawmakers voted for a new tax on a person’s assets at death, which we now call the Estate Tax aka “Death Tax”. This tax affected fewer than 1% of Americans and today only affects 2 out of every 1,000 deaths, which is less than 1%(0.2% to be exact). Most Americans’ life savings (or estates) fall below the federal exemption amount that is currently $5.45 million. Comparing this to 1916, where the exemption amount was $50,000 (roughly $1 million in current dollars), I would think most people would be happy, but the debate continues. Democrats want to strengthen the estate tax by lowering the exemption amount and raising the estate tax rate, while Republicans want to repeal it. This is reflected in history when in 2010 it went away, but not permanently, because it came back in 2011, and it continues into the current debate.

Another label, as you might call it, for the Estate Tax is the “Voluntary Tax”. With proper planning, you can reduce or eliminate the tax entirely. Each person can make an annual tax free gift, in cash or assets, up to a specified amount ($14,000 in both 2015 & 2016) to another individual. The individual does not have to be related to you and there is no current limit on the number of recipients, so plan ahead. You can avoid those taxes that come into play after death, and in doing so, put a few smiles on the faces of those who matter most to you. Instead of making them deal with the headache and stress of the tax consequences after you are gone.

So, once again … Happy 100th Anniversary to the Estate Tax!

Please consult a tax advisor or estate planner before making any rash decisions, just to be safe as these matters can be very complex.

By Chris Morrison