What is the estate tax?
The federal estate tax, often referred to as the “death tax”, applies to property transferred at death when the value of the property exceeds the estate tax exemption.
When is the tax due?
The tax is due 9 months after the date of death, and is payable in cash.
What is the GST tax?
The generation-skipping transfer tax is a tax on assets that you pass on to your grandchildren (technically known as “skip persons”) at an effective 58% rate, once you have utilized your GST exemption. In 2013, the effective rate is scheduled to return to 80%.
What is the history of the estate tax?
The estate tax was initiated in 1916 to fund World War I. It was maintained in the tax code through the 20s and 30s to help prevent the concentration of wealth. Since that time, anti-trust laws have eliminated those concerns, but to date, the estate tax remains intact.
When was current estate tax law established?
Current estate tax law was established in 2012 in the American Taxpayer Relief Act (P.L. 112-240). That bill, also referred to as the “fiscal cliff” deal, was a bipartisan package that included some major estate tax relief provisions. Key provisions of ATRA included:
- A maximum estate tax rate of 40 percent, effective January 1, 2013. While ATRA increased the rate above the previous rate of 35 percent, it prevented a sharp increase to 55 percent, had the package not passed.
- ATRA permanently maintained the $5 million exemption amount, indexed for inflation. For 2015, the inflation adjusted amount is $5.43 million. Had ATRA not passed, the exemption would have fallen to just $1 million.
- Unification: The estate and gift taxes were permanently unified. This establishes a single graduated rate schedule for both the estate and gift taxes.
- Spousal portability: ATRA permanently allowed couples to transfer any unused exemption to the surviving spouse under simplified rules.
- No harmful offsets: ATRA preserved widely-accepted accounting principles including valuation discounts, grantor-retained annuity trusts (GRATs) and state estate tax deductibility.
How much revenue is raised by the estate tax?
Less than 1% of the government’s revenue is generated from the estate tax. In 2013 (latest IRS date available), it was $12.9 billion.
What is the cost to collect the estate tax?
According to a December 1998 Joint Economic Committee report, the cost to comply and collect the tax is equal to the revenue raised.
How does the estate tax hurt family businesses?
Much of the value of family-owned businesses, such as farms, manufacturers and construction firms is illiquid, as these businesses reinvest profits in assets such as land, buildings and equipment. When an owner passes away, these assets are often sold to pay the estate tax. In this way, the tax endangers a family business’s ability to survive between generations.
The cost of the estate tax comes not only from paying the tax itself, but also from the cost of attorneys, accountants and life insurance policies as they engage in estate planning. For many family-owned businesses to keep operating after the death of the owner, they must plan for the estate tax. Planning costs associated with the estate tax are a drain on business resources, diverting precious resources away from expanding their businesses and creating jobs.
How many family businesses are there in America?
According to a Fall 1996 survey conducted by Kennesaw State College, within the definition that the family controls the business either by stock or through management, 91% of all businesses in America are family owned. Click here to read the survey.
How does the estate tax affect the succession of the family business to future generations?
More than 70% of family businesses do not survive the second generation. 87% do not make it to the third generation.
What is the economic effect of repealing the estate tax?
A study by Douglas Holtz-Eakin and Cameron T. Smith in 2009 found that if estate, gift and GST taxes were repealed it would raise the probability of hiring by 8.6 percent, increase payrolls by 2.6 percent, expand investment by 3 percent, create 1.5 million small business jobs, and cut the jobless rate by 0.9%.
How does the small business community view the estate tax?
Unfavorably. Ninety trade and industry organizations have formed the Family Business Estate Tax Coalition, whose sole purpose is to secure sustainable relief and ultimate repeal of the estate tax.
What is the general public’s attitude towards repeal of the estate tax?
In national polls, focus groups and instant response sessions – 70% of respondents believe that the estate tax should be repealed.
What can Congress do to address the estate tax?
Following the passage of ATRA, many lawmakers on the left and right consider the death tax “settled law”. However, the estate tax continues to impose a heavy burden on family businesses. Attorneys, accountants and life insurance companies benefit as hard-working entrepreneurs – the backbone of this country – carry the burden. Many Members of Congress recognize this burden and have gone on the record to indicate they support further relief and ultimate repeal of this onerous and confiscatory tax.
During consideration of the Budget Resolution in 2013, the Senate debated and voted on side-by-side amendments offered by Sens. John Thune (R-SD) and Mark Warner (D-VA). The Thune amendment called for repeal of the death tax, while the Warner amendment called for either repeal or further relief from the death tax. The Thune amendment failed to pass (Roll Call Vote 67), though Democratic Sens. Max Baucus (MT) and Joe Manchin (WV) voted in favor. However, the Warner amendment passed (Roll Call Vote 66), garnering 80 total votes in favor (with 35 Democrats). The Warner vote shows us that broad support still exists to readdress the issue, with significant support for repeal remaining on both sides of the aisle.
In the House, Rep. Kevin Brady (R-TX) introduced legislation in the 112th and 113th Congresses that would have repealed the estate tax. Both pieces of legislation garnered over 218 cosponsors – indicating a vote on any such bill would pass easily. The family business community is working closely with Rep. Brady and Sen. Thune as they work to reintroduce estate tax repeal legislation in the 114th Congress. The House has made a 2015 death tax repeal vote a priority – there has not been a standalone repeal vote in the House since April 2005. Family businesses encourage the Senate to schedule a vote as well.
An additional way in which the House and Senate could explore the burden the death tax represents would be to hold either dedicated hearings or devote a panel in a larger hearing in the relevant committees. The Committees on Finance, Ways and Means and the Small Business committees should allow practitioners and family business owners the opportunity to describe their experience with the death tax and how it negatively impacts their business decisions.