A question that appears to come up after every election, is whether the death tax will be repealed. The Federal Estate Tax, commonly referred to as the Death Tax, is a tax that is assessed on the transfer of wealth, currently above $5.45 million. In 2012, the Federal Estate Tax was amended to provide for a favorable exemption. Specifically, a $5.25 million exemption from the estate tax was added (indexed for inflation, it currently sits at $5.45 million), and portability was made permanent.
What this means is that the first $5.45 million that transfers at death to the next generation is not subject to the estate tax. In addition, with portability becoming permanent, this became a very favorable legislation change. Portability is a term that refers to the transfer of any unused federal estate tax exemption to the surviving spouse.
Why this is important is because there exists an unlimited federal estate tax exemption between spouses. Therefore, you can leave an unlimited amount of assets at death to your surviving spouse without incurring estate tax. However, since most people prefer to leave their entire estate to their surviving spouse, this results in an unused and wasted federal estate tax exemption.
Although, in the 2012 amendments, this unused federal estate tax exemption can now be transferred to the surviving spouse, so long as a timely federal estate tax return is filed. This has the effect of creating a $10.9 million exemption from the federal estate tax for the surviving spouse.
Therefore, we have a very favorable tax regime as less than 1% of the United States population will ever incur estate tax at death.
However, there has been a movement by the Trump Administration to repeal the death tax as an archaic and outdated form of taxation that harms families. Although, the Trump Administration is accurate that for those families who incur the federal estate tax, the taxation rate is steep (currently a top tax rate of 40%). I do not see a full repeal of the estate tax on the horizon.
Furthermore, for estates that will be subject to the estate tax there are a number of legal strategies that can be used to substantially reduce, and in some instances, completely eliminate the estate tax burden.
In conclusion, I feel that the death tax, in one form or another, is here to stay.
If you have questions about preserving your wealth for your family, or engaging in estate tax planning, I encourage you to download our Books and Free Reports. I am sure you will find the information extremely valuable.
If you are ready for a Family Wealth Transfer Planning Session, please contact our office by using the contact form, e-mail us at [email protected], or call us at 615-472-2482. We look forward to hearing from you.
As always, we are here to help!
Daniel Perry is an Estate Planning, Business Law, and Tax Attorney in Franklin, Tennessee. Daniel and his wife Catherine, and their children William and Landon, live in Spring Hill, Tennessee. Daniel graduated from Holy Cross College and Purdue University, as well as received his law degree from the University of Dayton School of Law. Daniel has devoted his entire practice to the area of estate planning, business law, and tax law, he continually writes, publishes, and speaks publicly on topics in the area of estate planning and elder law, and his book, Estate Planning for Tennessee Families, is being published and can be obtained Free of charge by any Tennessee Families interested in developing a plan that works for their family. Dan can be reached at [email protected] and (615) 472-2482 for public speaking requests.