The estate tax is celebrating its 100th birthday this year. Although this marks a momentous occasion for the tax, this year also marks a big year for politics. This piece discusses how the current presidential race could impact the estate tax on its centennial.
The estate tax: A brief history
The estate tax went into effect in 1916. It was enacted under Woodrow Wilson and provided an exemption for the first $50,000 of wealth that was transferred. According to a recent piece by Accounting Today, this would translate to an exemption for roughly the first $1.1 million transferred in 2016.
The rate of taxation in the original plan ranged from 1 to 10 percent, with 1 percent applying on transfers over the $50,000 and the rate rising with larger transfers. The tax was relatively mild. In fact, if compared to 2016 values the top taxation rates would apply only to estates that were valued over $110 million.
In addition to being fairly mild, there was no such thing as a gift tax. As a result, estates could transfer all of their wealth to loved ones and avoid any taxation.
The current state of the estate tax
The system is much more complicated today than it was when the estate tax was first enacted. Gift taxes make transferring assets a bit more complicated, though not impossible. The exemption rate is not quite as high comparatively as it once was. Recent rates at the federal level were set at an exclusion on estates up to a value of $5.45 million as of 2016.
The federal estate tax will likely continue to evolve. This is especially true with the upcoming election.
The potential impact of each major candidate on the estate tax
The same piece by Accounting Today notes that each candidate would push the estate tax to evolve in a different way.
Donald Trump has stated that he would eliminate the federal estate tax altogether. In contrast, Secretary Hillary Clinton's plan is a bit more complex. It would include an addition of three higher brackets, as originally proposed by Bernie Sanders. These brackets would essentially apply at a tax rate of 50 percent for estates over $10 million per person, 55 percent for those over $50 million per person and 65 percent for those over $500 million per person.
How this impacts you
Whether considering putting together an initial estate plan or updating a current plan, the results of the election will likely impact your strategy. Various options are available that can reduce your tax obligations. It is also important to keep in mind that state obligations should also be taken into account.
As a result, it is wise to seek the counsel of an experienced estate planning attorney in order to better ensure that your goals are met. This legal professional will review the state of your estate and provide actionable options that can help you meet your goals.