One common question clients have is, “How much Estate Tax will I owe?” For most clients, the answer is “None.”
As of 2016, the United States Estate Tax Exemption is $5.45 million ($5,450,000) per person. There is portability of the exemption between married couples so married couples effectively have an exemption of $10.90 million. That means an individual passing away in 2016 can pass $5.45 million (and a couple $10.90 million) without having to pay a cent in estate taxes.
So how many Americans end up paying estate tax each year? According to the Joint Committee on Taxation’s 2015 report to Congress, during “2013, the most recent year for which final numbers are available, there were 2.6 million deaths in the United States, and 4,700 estate tax returns reporting some tax liability were filed. Thus, taxable estate tax returns represented approximately one-fifth of one percent of deaths.” [Source: https://www.jct.gov/publications.html?func=startdown&id=4744] That’s another way of saying 99.8% of Americans who passed away in 2013 did not owe any estate tax.
That’s a big difference than in the past. Consider that in 1997, the Estate Tax Exemption was $600,000. It’s been less than 20 years since then and the Estate Tax Exemption has fluctuated wildly, as the chart below shows, from $1,000,000 in 2003 to unlimited in 2010.
| Year | Estate Tax Exemption |
| 1987-1997 | $600,000 |
| 1998 | $625,000 |
| 1999 | $650,000 |
| 2000-2001 | $675,000 |
| 2002 | $1,000,000 |
| 2003 | $1,000,000 |
| 2004 | $1,500,000 |
| 2006-2008 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010 | None |
| 2011 | $5,000,000 |
| 2012 | $5,120,000 |
| 2013 | $5,250,000 |
| 2014 | $5,340,000 |
| 2015 | $5,430,000 |
| 2016 | $5,450,000 |
Estate planning attorneys and clients wish there were more certainty regarding the future taxation of estates and gifts. However, little in this area is certain. Currently there are proposals in Congress ranging from repealing the estate tax completely to repealing any estate tax exemption. There is considerable discussion regarding reducing the exemption to $3,500,000 or $2,500,000. It is unlikely that any legislation regarding the estate tax passes this year. Depending on the outcome of this November’s election, tax code reform may get serious consideration in 2017.
With the uncertainty regarding the future of the estate tax, it is important to review your estate plan periodically to ensure that your estate plan is consistent with current tax rates.