The federal estate tax, sometimes called the ‘death tax’ is an ongoing topic of political debate, and of course the current presidential candidates all have a position on the estate tax. First, what is the federal estate tax? The estate tax is a tax imposed on the value of assets a person owns at the time of death. A person’s taxable estate may also include the value of assets given away during lifetime. Currently, the federal estate tax rate is a flat 40% on the amount in excess of the allowable exemption which sounds ridiculously high, right? However, each person is entitled to pass on $5,450,000 worth of assets free of estate tax in 2016. Further, the amount of the exemption is indexed for inflation so it goes up every year. In addition, everything a person leaves to his or her spouse passes free of estate tax regardless of the amount. This means a married couple can leave almost $11 million without any federal estate tax! Not too shabby.
Here’s how the four major presidential candidates would change that if they had their way. .
Hillary Clinton: the Democratic candidate would reduce the exemption amount to $3.5 million per person and would increase the rate from 40% to 45%.
Donald Trump: the Republican nominee would eliminate the federal estate tax entirely.
Gary Johnson: the Libertarian Party’s candidate wants to eliminate the current tax system (and the IRS!) entirely, including the federal estate tax.
Jill Stein: the Green Party representative would change the name from ‘Estate Tax’ to ‘Aristocracy Tax’ and would increase the rate of tax on inheritances over $3 million to at least 55%.
Keep in mind that each state is free to enact its own estate tax laws and many, including Massachusetts, have done that. Massachusetts imposes an estate tax on taxable estates in excess of $1 million and applies a graduated tax rate which ranges from 0% to 16%.
Since any change in the federal estate tax needs to be enacted by Congress, I am not going to get too excited about any of these proposals – if past conduct is the best indicator of future performance, then we can be pretty confident that nothing about the current federal estate tax is going to change!