In recent news, presidential candidate and current U.S. Senator Bernie Sanders has proposed what he is referring to as the “For the 99.8% Act.” The purpose of this Act would be to place an estate tax on the wealthiest Americans. Sanders is quoted as stating: “Our bill does what the American people want by substantially increasing the estate tax on the wealthiest families in this country and dramatically reducing wealth inequality.” Sanders goes on to state: “[f]rom a moral, economic, and political perspective our nation will not thrive when so few have so much and so many have so little.”
The plan calls for estates valued from $3.5 million to $10 million to be taxed at a rate of 45 percent. That rate continues to increase to a top rate of 77 percent for estates valued in excess of $1 billion.
As expected, members of the GOP are avidly against this idea, referring to it as a “death tax.” In contrast to Senator Sanders’ proposal, they are looking to introduce legislation to permanently eliminate the estate tax.
Passed as part of the Tax Cuts and Jobs Act of 2017, estates valued at under $11.18 million will not be subject to an estate tax. This $11.18 million threshold is known as the “lifetime exemption amount”. That amount doubles for married couples in most circumstances. The 2017 Act more than doubled the lifetime exemption that was in place in 2016. Given these numbers, it is clear that very few estates will be affected by an estate tax under the new 2017 law. In one report, it was estimated that only 1,800 estates owed estate tax in 2018. That is in stark contrast to the 52,000 estates that owed estate tax in the year 2000 when the lifetime exemption was only $675,500.
All of the facts mentioned above illustrate one clear point – the lifetime exemption amount and effective estate tax rate are subject to political forces and may change drastically from administration to administration. We will never know what the lifetime exemption amount or the effective estate tax rate will be in the year of your passing. While that point is not very reassuring, it demonstrates why the attorneys at La Grasso, Abdo & Silveri PLLC aim to develop ongoing relationships with their clients so that they can help navigate any laws that are enacted well beyond the signing of their clients’ estate planning documents.