After a loved one dies, family members are often rightfully concerned about taxes. In some cases, a Federal Estate Tax, commonly referred to as the “Death Tax,” may come into play that can easily eat away at the family’s estate.
The good news is that most people will not actually owe Federal Estate Taxes. As of this writing, the Federal Estate Tax is only applicable on estates valued at $5.45 million per individual, or $10.9 million per couple.
However, the Federal Estate Tax exemption is subject to change, either being raised or lowered depending on what political party holds sway in Washington, D.C. at the time. That being said, the best way to prepare for possible estate taxes is to know all the pertinent information there is about the Federal Estate Tax.
Will I have to pay the Federal Estate Tax?
As stated before, unless you are a multi-millionaire, chances are that you will not have to pay the Federal Estate Tax. In fact, it is estimated that over 99% of people will not owe any estate taxes to the Federal government when they die. The top tax rate on Federal Estate Taxes is 40%, which seems like a lot, but this tax rate is only applied to any assets over the exemption limit. For example, if a person passed away with a net worth of $5,430,001.00, they would only be assessed an estate tax on $1.
Has the Federal Estate Tax exemption ever changed?
Yes. In fact, in 2001 it was just $650,000 – a threshold much lower than many state estate taxes. During the past few years, there was much debate in Congress as to whether the estate tax exemption should be raised or lowered, prompting many fears from wealthier individuals; however, the Federal Estate Tax exemption was set at $5.25 million in 2013 and rises along with the rate of inflation every year.
What can happen to the Federal Estate Tax after the 2016 Presidential Election?
President-Elect Donald Trump has previously gone on the record to express his desire to eliminate the Federal Estate Tax altogether. This is a staunch different from the platform that Hillary Clinton ran on, proposing to increase the top tax rate to 45%, while lowering the exemption to $3.5 million. Members of Congress also have a role in the decision-making process.
Really the possibilities of what can happen are endless, and depend on who is actually in control of the Legislative and Executive Branches. While it does not look like the Federal Estate Tax exemption will be lowered to 2001 levels any time soon, there is still a chance that rates will be raised and limits will be lowered – or that there will be no Federal Estate Tax at all sometime in the next four years.
If you have any questions about the Federal Estate Tax or how you can account for these taxes in your estate plan, please contact us 281-218-0880 at to set up a consultation.