The original purpose for the enactment of the estate tax in 1916 was to be a temporary tax used to pay off the war bonds of WWI. One hundred years later and it’s still around. However, Donald Trump has pledged to repeal the estate tax, although presidential candidates promising to repeal the estate tax is standard campaign rhetoric in every election. However, this time around, with the incoming Trump Administration, it may be more than just talk.
The estate tax is hardly a cash cow. The Congressional Joint Committee on Tax reports that the income tax lost because of step-ups in basis on capital gains far exceeds the amount of estate tax collected. It places incentives for individuals with large estates to set up tax-exempt foundations which eliminate vast sources of tax revenue. Thus, convoluted legal structures exist so that an individual’s estate will pay less tax upon death.
Currently, for 2017, the estate and gift tax exemption is $5.49 million per individual, an increase from $5.45 million in 2016. Thus, an individual may leave $5.49 million in assets to heirs without any federal estate or gift tax liability. Surviving spouses may carry over each other’s unused exemptions, allowing a couple to exempt almost $11 million ($10.98 million) from federal estate and gift taxes. Estates that are taxable, pay a tax rate of 40%. Assets passed to heirs receive a “stepped up basis” that may allow capital gains to avoid any tax. House Republican passed estate tax repeal along with a continued stepped-up basis on a 240-179 vote in April 2015.
The estate tax affects only a few taxpayers. In the tax year 2015, 4,918 estates paid $17 billion in estate taxes, which amounted to less than 1% of federal revenue. Also, 266 estates valued at $50 million or more paid $7.4 billion in tax revenue in 2015. Along with repealing the estate tax, Trump Plan’s would make capital gains held until death and valued over $10 million subject to tax to exempt small businesses and family farms. Contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed to prevent fraud and abuse.
Here’s a breakdown of payers of estate tax based on recent Internal Revenue Service statistical data for taxable estate tax returns filed in 2015:
| Size of estate | Number of estates | Net estate tax |
| Under $5 million | 665 | $351,764,000 |
| $5 m < $10 m | 2,298 | $1,928,999,000 |
| $10 m < $20 m | 1,150 | $3,349,538,000 |
| $20 m < $50 m | 540 | $4,062,621,000 |
| $50 m and up | 266 | $7,392,722,000 |
If you are an individual or business in the New York or Tri-State area and have any question about estate taxes, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
