Connections for Success



A Brief History of Estate Taxes
Frank L. Washelesky

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

Tip: Regardless of your net worth, it is critical to understand your choices when developing an estate strategy.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the Navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹

Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act, added a tax on transfers of real estate and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.²

Fast Fact: Estate Income. Between 2016 and 2025, the estate tax will generate about $246 billion.
(Center on Budget and Policy Priorities, 2015)

In 1898, a federal legacy tax was proposed to raise revenue for the Spanish-American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.³

However, in 1913, the 16th Amendment to the Constitution was ratified, giving Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, which, in one way or another, has been part of U.S. history since.

In 2010, the estate tax expired — briefly. In December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.

In 2012, the American Tax Relief Act made the estate tax a permanent part of the tax code.

As part of the 2017 Tax Cuts and Jobs Act, estate tax rules were again adjusted. The estate tax exemption was raised to $11.2 million, a doubling of the $5.6 million that previously existed. Married couples may be able to pass as much as $22.4 million to their heirs.

The 2017 Act is set to expire in 2025, so it is possible the estate tax law may be adjusted at least once during the next few years. If you are uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

Estate Taxes and Overall Federal Revenues

Estate taxes typically account for less than one percent of total federal revenue.

Estate Taxes and Overall Federal Revenues

Chart Source: Center on Budget and Policy Priorities, 2015

Exemption through the Years

Federal estate taxes exempt a share of estates from federal estate taxes. For the 2017 tax year, if an estate is worth less than $5.49 million, no federal estate taxes may apply.

Exemption Through The Years
Year Exclusion Amount Highest Tax Rate
1916 $50,000 10.0%
1917 $50,000 25.0%
1918-1923 $50,000 25.0%
1924-1925 $50,000 40.0%
1926-1931 $100,000 20.0%
1932-1933 $50,000 45.0%
1934 $50,000 60.0%
1935-1939 $40,000 70.0%
1940 $40,000 70.0%
1941 $40,000 77.0%
1942-1976 $60,000 77.0%
1977 $120,000 70.0%
1978 $134,000 70.0%
1979 $147,000 70.0%
1980 $161,000 70.0%
1981 $175,000 70.0%
1982 $225,000 65.0%
1983 $275,000 60.0%
1984 $325,000 55.0%
1985 $400,000 55.0%
1986 $500,000 55.0%
1987-1997 $600,000 55.0%
1998 $625,000 55.0%
1999 $650,000 55.0%
2000-2001 $675,000 55.0%
2002 $1,000,000 50.0%
2003 $1,000,000 49.0%
2004 $1,500,000 48.0%
2005 $1,500,000 47.0%
2006 $2,000,000 46.0%
2007 $2,000,000 45.0%
2008 $2,000,000 45.0%
2009 $3,500,000 45.0%
2010 $0 or $5,000,000 0% or 35%
2011 $5,000,000 35.0%
2012 $5,120,000 35.0%
2013 $5,250,000 40.0%
2014 $5,340,000 40.0%
2015 $5,430,000 40.0%
2016 $5,450,000 40.0%
2017 $5,490,000 40.0%

Chart Source: Internal Revenue Service, 201

1,2,3. Internal Revenue Service, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

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