Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.
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 When the crisis ended in 1802, the tax was repealed.¹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 As before, once the war ended the Act was repealed.²
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 The end of the war came in 1902, and the legacy tax was repealed later that same year.³
Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.
In 2010, the estate tax expired — briefly. But 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 is now $11.4 million for individuals, a doubling of the $5.6 million that previously existed. As of 2019, married couples may be able to pass as much as $22.8 million to their heirs. The 2017 Act is set to expire in 2025, so it’s possible the estate tax law may be adjusted at least once during the next few years. If you’re revising estate strategy assumptions, it may be a good time to review the approach you currently have in place.
An estate plan can be an important part of your retirement plan. Even with the doubling of the estate tax exemption limit, there are taxes that can affect your heirs. To learn how to help minimize taxes for your heirs, you can sign up for a complimentary review with one of the professionals at Wealth Management Group.