Estate Tax May Survive Federal Tax Reform

Congress is in the midst of debating tax reform which features an attempt to possibly repeal the federal estate tax (also referred to as the “death tax”). This tax typically effects high value estates that can result in a whopping 40 percent estate tax. In fact, the 40 percent estate tax affects approximately 0.2 percent of estates in America. That translates to 5,460 estates in 2017, according to the nonpartisan Tax Policy Institute. Though, there are sizable exemptions to the estate tax under current law. For example, in 2017, the estate tax exemption is $5.49 million per individual. This means an individual can leave $5.49 million to their heirs and pay no federal estate or gift tax, according to Forbes.

There has been long-held criticism behind the premise of the federal estate tax, especially in conservative circles. They point out that the estate tax is essentially a double-tax on hard-earned income and harms family-owned businesses and farms.

Stalled Negotiations Causing Lawmakers to Drop Estate Tax from Comprehensive Tax Reform

After months of debate, Republican members of Congress have found themselves between a rock and hard place. They are reportedly no longer even considering a full-fledged, comprehensive revamp of the tax code. Instead, they are focused on trying to put together a package of tax cuts for individuals and businesses that can pass both the House and Senate. In order to offset the lost revenue from these proposed tax cuts, members of Congress are considering keeping the estate tax since it is projected to raise revenue between $25 billion and $34 billion annually over the next decade.

If the estate tax repeal is dropped from the tax package, it could create a pathway to a bipartisan agreement where both Democrats and Republicans can get on board. However, dropping the estate tax repeal may actually make it harder to get through the House of Representatives since many conservative Republicans have campaigned on repealing the tax.

Other Legislative Options

If repeal is abandoned, there are other ways the estate tax could be modified. For example, lawmakers could create a higher exemption amount so even less estates are exposed to the 40 percent tax. Or, they could lower the tax rate so it is less onerous for the estates hit with the tax. Another option is a finite repeal where estates would essentially get an “estate tax holiday” for a few years. This would allow Congress to declare that they repealed the tax but keep some of the revenue projections in the legislation.

States Already Taking Action

I recently blogged about the steps many states have taken to modify or eliminate their estate taxes. It seems appropriate that the federal estate tax is now being reviewed by members of Congress. Whether or not the tax is actually repealed remains anyone’s guess.

Contact an Experienced Trust and Estate Planning Attorney Today

If you are concerned about how the estate tax might affect your estate plan, contact InSight Law today. Our team of experienced trust and estate planning attorneys possess a deep understanding of the estate tax and other relevant provisions within the tax code. Contact our office today to schedule a meeting.