Below is a chart of our nonsensical estate tax laws. Note the wildly different amounts that can pass (or did pass) without estate tax, depending solely on the year of death.
Yet, over the last 31 years, the amount that can pass without estate tax has never gone down, starting with President Reagan to President Clinton to President Bush to President Obama. (See * at end.)
There is great uncertainty as to what the tax free amounts will be for those dying after 2012.
The chart below also shows gift tax exemptions and generation skipping transfer tax exemptions.
| 2010 | 2011 | 2012 | 2013 | |
| Estate Tax | ||||
| Exemption amount * | $5.0 million | $5.0 million | $5,120,000 | $1.0 million *See note below ** |
| Tax rate | Flat (35%) | Flat (35%) | Flat (35%) | Progressive (up to 55%) |
| Elections | Can elect out of estate tax, but §1022 carryover basis will apply ($1.3 million “free-basis” + $3.0 million spousal bonus) | Can elect to add “deceased spousal unused exclusion amount” (basically, the unused exemption from the estate of the decedent s last deceased spouse or the exemption amount in effect at the decedent s death, whichever is less) to the exemption amount | Can elect to add “deceased spousal unused exclusion amount” (basically, the unused exemption from the estate of the decedent s last deceased spouse or the exemption amount in effect at the decedent s death, whichever is less) to the exemption amount | None** Note that President Obama’s approved a $5 million dollar exemption and also supported a $3.5 million dollar exemption and favors so-called “portability,” while all Govenor Romney favor repeal of estate tax.We won’t know what the 2013 exemption will be until some time after the November election. |
| Gift Tax | ||||
| Exemption amount | $1.0 million | $5.0 million (plus, if elected, the “deceased spousal unused exclusion amount”) | $5,120,000 (plus, if elected, the “deceased spousal unused exclusion amount”) | $1.0 million See note above. |
| Tax rate | Flat (35%) | Flat (35%) | Flat (35%) | Progressive (up to 55%) |
| Generation-Skipping Transfer Tax | ||||
| Exemption amount | $5.0 million | $5.0 million | $5,120,000 | $1.0 million See note above.(indexed from 1997) |
| Tax rate | Zero | Flat (35%) | Flat (35%) | Progressive (up to 55%) |
* Note the evolution of estate tax exemption amounts: $161,000 in 1980; $225,000 in 1982; $275,000 in 1983; $325,000 in 1984; $400,000 in 1985; $500,000 in 1986; $600,000 from 1987 – 1997; $625,000 in 1998; $650,000 in 1999; $675,000 in 2000-2001; $1,000,000 in 2002-2003; $1,500,000 in 2004-2005; $2,000,000 in 2006-2008; $3,500,000 in 2009; $5,000,000 in 2010-2011.
Due primarily to the increases in the estate tax return filing threshold noted above, the number of estate tax returns (IRS form 706) filed decreased from more than 108,000 in 2001 to just over 15,000 in 2010. See the statistics at the IRS web page at http://www.irs.gov/pub/irs-soi/10esesttaxsnap.pdf.
Copyright 2012 Phillips Law Offices, A Professional Corporation