A Snapshot of Federal Estate Tax

The federal estate tax is a tax on your right to transfer property, including cash, real estate, and stock, at your death. It was introduced by policymakers in 1916 to supplement the federal income tax and ensure that the richest Americans were contributing their share. To accommodate the rest of us, they then implemented an estate tax exemption to allow estates under a specific value to pass estate tax-free. This amount has been increasing consistently since 1997, while the tax rate has been decreasing.

Federal Estate Tax Exemption Amounts Over the Years

1997: $600,000

2002: $1,000,000

2007: $2,000,000

2012: $5,120,000

2017: $5,490,000

2019: $11,400,000

The current federal estate tax exemption is $11.4 million. This means that if you were to die in 2019 with an estate worth $11,400,100, only $100 would be taxed at the federal level. If you leave fewer than $11.4 million, your estate owes no tax. The exemption also employs “portability,” which enables taxpayers to transfer unused exemption amounts to their spouse to be added on top of their own exemption.

Last year, fewer than 0.1% of all U.S. estates were required to pay federal estate tax. Despite this minuscule number, federal revenue as a direct result of this tax is massive–repealing it would cost the U.S. government almost $270 billion over the course of a decade.

More recently, in December 2017, the Tax Cuts and Jobs Act (TCJA) increased the federal estate tax exemptions significantly. In 2017 and 2018 the federal exemption was $5.49 million; now, in 2019, it’s $11.4 million. That means a married couple can leave more than $22 million before their estates will owe any federal estate tax. Ultimately, the TCJA will expire after 2025 so it’s possible that the exemption amount can and will default to old levels unless Congress votes to extend it.

After our brief holiday break we’ll be posting the second and final part in our estate tax series focusing on state-specific policies. Please plan to check back if you’re interested in learning more!

B.B.

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Brittany Britton is licensed to practice law in the state of California only.

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