In 2016, we saw the 100th-year anniversary of federal estate taxes. Congress passed the Revenue Act in 1916 to raise money for World War I. That was the first time the federal government taxed inheritances passed down to children. The Revenue Act only affected wealthy Americans with estates of $50,000 or more, which is the equivalent of about $1.1 million today.
The cutoff now is much higher than $1.1 million. It's $5.45 million. Nevertheless, it's still a point of controversy. Some liberals want to lower the $5.45 million exemption, while some conservatives want to get rid of estate taxes altogether.
As the wealth gap between the rich and poor continues to increase in the United States, some argue that it's a sign that the privileged should be taxed through estate taxes. Some believe that taxes would be a way to bring more equality into society, and without such taxes, we could be on our way to returning to a kind of feudal society where the rich can easily become richer, as the poor become poorer and poorer.
Others say that inheritance taxes have a bad effect on saving because they discourage people who might want to save money to leave something noteworthy to their heirs. These more conservative-minded individuals call inheritance taxes "death taxes" and they say that they are not fair.
During the George W. Bush administration, inheritance tax collection was suspended. During the Barack Obama administration, inheritance taxes were reintroduced. What will the next administration do? It seems that we could see, again, a reduction and/or elimination of inheritance taxes. Regardless what happens, it is likely that we will see change, so Tennessee residents are encouraged to get in touch with an estate planning lawyer over the next year to determine if their estate plans are in alignment with the current policies and laws.
Source: Washington Post, "Why America is a smart place for very rich people to die," Philipp Alvares de Souza Soares, accessed Dec. 29, 2016