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Estate tax hit the 100-year mark. Anyone celebrating?

On Behalf of | Nov 7, 2016 | Estate Planning, Firm News

Estate taxes may not be much on the minds of many folks in Arkansas. The state doesn’t have one. The federal government does, and it can take a healthy bite out of one’s assets if effective estate planning isn’t undertaken.

Perhaps that’s one reason why the recent centennial birthday of the federal estate tax passed without a great deal of fanfare. Yes, it was Sept. 8, 1916, that the estate tax came into being in the United States, courtesy of provisions in the Revenue Act signed by Woodrow Wilson.

With the advent of that law, the income tax doubled from 1 percent to 2 percent for individuals in the lowest bracket. For those in the highest, it went from 7 percent to 15 percent. It also contained provisions calling for a tax on munitions profits and inheritances.

To soften the blow of that first estate tax, the government exempted the first $50,000 of assets transferred. Anything above that could be taxed at various rates of from 1 percent to a maximum of 10 percent on estates over $5 million.

In the intervening 100 years, a number of changes have been made in the law. For example, the first $5.45 million of an estate can now be exempted from tax. But any amount over that can face a tax of 40 percent upon transfer to heirs.

For all the changes that have taken place, a few things remain the same. As it was in the beginning, it is more cost effective for the creator of an estate to make gifts to heirs while alive, rather than pay the estate tax at death.

Many are looking at the possibility that, at 100, the estate tax is due for another round of cosmetic surgery. Whether that happens or not is something only time will tell. In the meantime, most experts would likely agree that the chances are that the estate tax is not going to go away. Planning thus remains important.


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