Estate tax turns 100: A brief review of the law on its centennial
The estate tax is celebrating a monumental birthday this year. The law, originally enacted as part of the Revenue Act of 1916 under Woodrow Wilson, is celebrating its centennial.
As with most momentous birthday celebrations, the event provides an opportunity to reflect on where the tax has been, where it is, and where it may be going in the future.
Evolution of the estate tax
A recent piece in Accounting Today discussed the history of the estate tax, noting that the estate tax began as a fairly nominal, easily avoidable fee on the transfer of an estate. At its inception, the first $50,000 of an estate transfer was exempt from the tax. If adjusted to 2016 terms, this translates to approximately $1.1 million that could be transferred without any fee.
Once the value of the estate transfered rose above this exemption amount, a tax was applied. This tax ranged from 1 to 10 percent. The higher the transfer, the higher percentage was taxed.
Even with this tax in place, the original estate tax was fairly easy to avoid since it was enacted before there was any sort of gift tax. This means people could gift away their estates without having to pay any taxes. This is no longer the case. Today, gift taxes apply on an annual basis on gifts that exceed a certain amount.
It is important to note that an estate can still be gifted to loved ones. The rules that govern these transfers are a bit more complex than they once were, but carefully application of legal gifting measures can yield results similar to those enjoyed in the past.
Future predictions for the estate tax
The estate tax, like any creature of law, will likely be impacted by the upcoming election. Candidate Donald Trump has stated that he would abolish the tax completely, while Secretary Hillary Clinton’s plan is a bit more complex.
One notable change Secretary Clinton has proposed involves the implementation of three brackets. These brackets would apply a 50 percent estate tax on transfers of estates over $10 million dollars, 55 percent on those over $50 million and 65 percent on those over $500 million.
What this means for those with or putting together an estate plan
The estate tax continues to evolve. As such, those who already have an estate plan in place are wise to review the plan on a fairly regular basis. Some of these changes can impact your plan and adjustments may be needed.
Whether updating or putting together an initial estate plan, it is wise to seek the counsel of an experienced estate planning attorney. This legal professional can guide you through the process, working to better ensure the plan meets your needs.