06 Mar Understanding the Estate Tax
“Death Tax” is a phrase that has been thrown around quite a bit in recent years. Individuals in Congress have been attempting to repeal the Estate Tax, more pejoratively called the Death Tax, to no avail for decades. The anger around this tax is not without reason, but the need for tax revenue has outweighed the ability of the men and women in Congress to repeal the tax. But what exactly is the Estate Tax, and why does it have so many people riled up?
What Is the Estate Tax?
The Federal Estate Tax is a tax that has been around on and off since the founding of our country. It has been implemented and repealed three different times in America’s history, mostly to fund wars. But in 1916, the Revenue Act was put in place to fund World War I efforts and has, in some way or another, been around ever since. The Estate Tax does exactly what the name implies, it taxes the estates of those who have passed away and are leaving assets to those who they are survived by.
How Does the Estate Tax Work?
The tax works to tax the transfer of assets after death, as previously stated. Assets, however, does not mean just monetary items: the value of real estate holdings, property, stocks, and certain life insurance plans can all be added in to, what is called by the government, the ‘Gross Estate.’ This, to the uninformed, may seem as though it is a bad thing, and one could see why so many in Congress have worked towards the repeal of the Estate Tax.
Why You Shouldn’t Worry
In 2003, the estate tax affected a little over 60,000 American households. The rate at which these individuals were taxed was at a maximum of 49%, and these households had to have been giving away one million dollars or more in assets or more to be under the realm of the Estate Tax. Over the next 12 years, however, these numbers changed dramatically. Those in Congress that fought for the repeal of the tax did not get their wish, but did alter it in a way that made it almost obsolete. In 2005, the taxable ‘exclusion rate’ was changed to 1.5 million dollars. In 2006, the rate was changed to two million dollars. The increasing of the exclusion rate has continued all the way up to 2014, where it now sits at 5.34 million dollars.
What Does This Mean for You?
Unless your total assets that you’re gifting after your death exceed 5.34 million dollars, you do not have to worry about the Federal Estate Tax. The Urban-Brookings Tax Policy Center estimates that, in 2015, only .15% of Americans will pay any sort of Estate Tax. It affects such a small amount of people in the upper strata of American society that it is hardly noticed by 99.85% of Americans. E.J. Dionne, a columnist for the New York Post, has even ventured to call the repeal of the Estate Tax the “Paris Hilton Tax Cut.”
Are you worried that you might fall into this .15 percent? Do you still not quite understand the ins and outs of the Estate Tax as much as you would like? Or would you just like help planning your estate so that your loved ones don’t have more to worry about after your passing? Click the button below to contact us and make an appointment, or come into one of our three office locations and we’ll do all we can do to help you in your estate planning.