The Future of the Federal Estate Tax
"In this world nothing can be said to be certain, except death and taxes." – Benjamin Franklin
This famous quote holds true more than 200 years after it was first penned. These certainties are bound together by our government under the Federal Estate Tax, a tax on your right to transfer property at your death. For 2017, the estate and gift tax exemption is $5.49 million per individual, $10.98 million for couples. That means an individual or couple with estates valued below those limits can leave their estate to heirs and pay no federal estate or gift tax. For those with estates valued over the exemption limits, the federal estate tax is set at a whopping 40%.
What is the Future of the Federal Estate Tax?
The future is uncertain. It has been a hot topic since the 2016 Presidential election because President Donald Trump has advocated a repeal of the tax. In January, 28 Republican Senators, including Grassley and Ernst from Iowa, introduced the Death Tax Repeal Act of 2017 (S. 205) to the Senate. The bill is aimed at repealing the estate and generation-skipping transfer taxes. As of the end of March, the bill remained with the Senate Committee on Finance, and will likely face a long journey to becoming law. It must first be passed by the Senate, then the House before making it to President Trump's desk.
Why Drop the Federal Estate Tax?
There are valid reasons for dropping the Federal Estate Tax. It contributes less than 1% of total federal revenue according to Tax Foundation, the leading independent tax policy nonprofit organization in the US. The revenue contributions have declined over the years, largely due to 2 factors: 1) the exemption mentioned above has grown, so fewer estates are actually paying the tax; and 2) wealthy individuals have sought out the services of good estate planners and taken advantage of opportunities to shelter their wealth. Additionally, most of your assets have already been taxed as earned income, as well as any realized capital gains earned on them. Some argue that the tax is expensive to administer, as well.
Tax Planning May Preserve Your Wealth
Even though you may feel like you are not impacted by the Federal Estate Tax, there are other death and inheritance taxes that may impact your Estate, so tax planning should be a part of everyone's Estate Plan. Contact one of our trust professionals about your specific situation. We want to help you every step of the way.
Lincoln Savings Bank, Member FDIC