Big Changes Coming to D.C. Estate Tax Laws

Starting in 2016, D.C. residents will be exempt from having to pay estate taxes if their estate is $2 million or less. This is a big change from the current exemption cap of $1 million. However, keep in mind that the language of the new law is somewhat vague. For example, one section of the new law appears to condition the higher estate tax exemption on “available revenue” which means the higher estate tax exemption may not take effect immediately in 2016, but another section implies that the exemption will automatically go into effect in 2016.

Check out the actual language of the estate tax bill here.

In addition to doubling the exemption cap, there will be 11 tax brackets above the $2 million threshold with a top tax rate of 16 percent for estates valued at $10 million.

The new law also plans to eventually increase the D.C. estate tax exemption to the same amount as the federal estate tax exemption, which is currently set at $5.34 million, indexed for inflation annually. Though, just like the exemption increase to $2 million, an increase to the federal amount is conditioned upon two things: (1) “additional revenue” becoming available and (2) that revenue can pay for at least twelve other tax cuts given higher priority over the estate tax exemption.

Translation: it may be awhile before the D.C. estate tax exemption is the same as the federal exemption.

Despite the conditions attached, this is a step in the right direction for the District that will likely help many families keep more of their assets and worry less about the local government taking a sizable percentage through estate taxes.

This major estate tax change is a big reason why you and your loved ones need to be sure and review your estate plan on a yearly basis so you can make any necessary changes when laws are passed, repealed, or amended. At InSight Law, we schedule annual reviews for all of our client’s estate plans.