The federal estate tax, a source of consternation for many who believe personal wealth and assets should be freely transferable to family, friends or charities after a person dies, seems to have become a permanent fixture of U.S. tax law. However, opposition to the estate tax — which some opponents have dubbed the “death tax” — doesn’t seem to be going away. There may yet be a battle over the future of this tax.

The estate tax currently applies only to estates of more than $5.34 million, with these estates subject to a maximum rate of 40 percent. The current rate was signed into law on January 1, 2013, as part of the “American Taxpayer Relief Act”, which set an exemption amount of $5 million indexed to inflation. The 40 percent maximum did not change.

Prior to 2013, the estate tax had an interesting recent history. Under President George W. Bush, who signed the “Economic Growth and Tax Relief Reconciliation Act of 2001”, the estate tax was slated for a gradual phase-out by combining annual increases in the exemption amount (which was just $675,000 in 2001) with the lowering of the maximum rate of taxation. This was to culminate in a total repeal, and in 2010 the estate tax was eliminated. However, the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” reinstated the estate tax, and the 2013 law used the 2011 amounts as a starting point.

Many of those who are against the estate tax argue that it penalizes people who have found success in life and harms small businesses and farms to the point that some may have to close. It also, opponents say, amounts to a redistribution of wealth from those who earn to those who do not.

Proponents of the estate tax, however, believe that the tax helps prevent the concentration of wealth among very few people, has little to no effect on small businesses due to the $5 million exemption and raises a comparatively small but still substantial amount of money each year for the U.S. Treasury. They also argue that the estate tax encourages the descendents of wealthy Americans to contribute productively to society, rather than sit back and enjoy the vast wealth accumulated by those who came before them.

For these reasons, the estate tax is a subject of considerable debate. Much may depend on the results of the November election, as a shift in control of the U.S. Senate could result in renewed calls for repeal of the federal estate tax if the makeup of the legislative branch seems more likely to support it. 

BoltNagi is an established and respected estate planning law firm serving individuals and families throughout the U.S. Virgin Islands.