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The History and Facts of Estate Tax

Estate tax in the U.S. is a contentious topic, and legislation surrounding estate taxes often fluctuates depending on the current political climate. This has caused estate tax to take many forms over the decades. In any case, it’s a good to know what you’re dealing with and how to handle it, so you can be better prepared when planning your own estate.

What is Estate Tax?

When a person dies, their properties, cash, stocks and other assets, collectively called their estate, are transferred to their heir(s). In some circumstances, depending on the valuation of the estate, a tax is levied on the estate during the asset transfer process. The 2017 exemption was $5.49 million per person – if the estate wasn’t worth more than that amount, estate tax would not be owed.

Estate Tax is Born

Though the first taxation of property transfers can be traced back to ancient Egypt in 700 B.C., the first estate tax iteration in the U.S. was born with the Stamp Tax of 1797. Taxes of 10 to 50 cents were applied to stamps required for wills for probate, receipts of legacy and other administrative letters. Exemptions applied to widows, children and grandchildren for bills less than $50. The tax was repealed in 1802.1

The Modern Estate Tax Takes Shape

The modern estate tax began with the Revenue Act of 1916, which established the taxation of the transfer of wealth from an estate to its beneficiaries and levied the tax on the estate rather than the beneficiaries themselves. Back then, the exemption was $50,000 – the tax rate was one percent for the first $50,000 and 10 percent on anything exceeding $5 million.1

Estate Tax Returns

Estate tax legislation has undergone tremendous changes since 1916, including the addition of the gift tax, generation-skipping transfer tax (GST) and many other revisions and additions. Estate tax rates were lowered and exemptions were slowly raised from 2001 to 2010. However, estate tax returned in 2011 and established the $5 million exemption base which was used for the next several years.

Changes for 2018

It’s been estimated that estate tax only applies to two out of every 1,000 estates.2 Regardless, estate tax continues to be a hotly-debated topic on Capitol Hill. Most recently, the Trump administration made changes to the estate, gift and generation-skipping taxes that doubled the exemption amount from $5.49 to $11.2 million per person from 2018 to 2025.3

Plan for Your Estate Today

Even if you’re exempt from estate tax, organizing an estate can be a complex process. The experienced attorneys at the Law Offices of David L. Carrier can walk you through every step – from establishing wills and trusts to understanding estate tax if necessary. Call 616-361-8400 or visit us online to get started or for more information about attending our Free LifeplanTM Workshops.

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1 https://www.irs.gov/pub/irs-soi/ninetyestate.pdf

2 https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax#_ftn4

3 https://www.forbes.com/sites/ashleaebeling/2017/12/21/final-tax-bill-includes-huge-estate-tax-win-for-the-rich-the-22-4-million-exemption/#54e98ba81d54