Throughout the 2016 campaign, then-candidate Donald Trump repeatedly voiced his distaste for the estate tax, which he and the others who oppose it have taken to calling the “death tax.” Although no legislation to repeal the tax has been proposed in Congress over the past few months, it certainly seems likely that lawmakers will try to move forward with a measure sometime soon.
The “death tax” pejorative refers to the idea that the tax is effective upon the death of the estate owner. Critics of the estate tax say this essentially means that people’s estates lose money simply because they pass away, unfairly preventing their heirs from inheriting the full value of those estates.
It’s worth noting that the estate tax affects only a small percentage of wealthy American families, and contrary to some criticisms, it has no discernible impact on most owners of small businesses.
According to data from the Tax Policy Center, there are only about 20 small businesses and farm estates in the country that paid any estate tax in 2013. Those that were affected paid an average rate of just 4.9 percent of the estate’s total value.
President Trump has said that “a lot of families go through hell over the death tax,” but additional information from the Tax Policy Center reveals that there were only about 4,700 total taxable estates in 2013. To that end, approximately one in 550—out of the 2.6 million people who died that year—had to deal with the estate tax at all.
In addition, approximately 90 percent of the amount of money collected from the estate tax is paid by the top 10 percent of income earners, with the richest one-tenth of a percent paying more than 25 percent of all estate taxes. As one can see, it’s an issue that largely is only relevant to the very wealthy.
What happens if the estate tax is repealed?
President Trump has already hinted to his plans if the estate tax were to be repealed. Under this plan, beneficiaries would pay a capital gains tax on any assets they sell based on the original cost of those assets. In some circumstances, this tax could be quite low. If, for example, someone purchased a share of Apple stock at a low price years ago, and that stock is now worth significantly more, the tax would still be based on the original price.
Therefore, while there is a slight trade-off involved, wealthy people currently affected by the estate tax would likely come out paying less under Trump’s plan.
The problem proponents of the estate tax have with this is that the tax affects so few people that repealing it does not make much sense. The tax currently generates extra revenue without the need to implement more taxes on lower- and middle-class Americans.
If you are interested in how a repeal of the estate tax could affect you, your business and your estate planning process, meet with a skilled U.S. Virgin Islands estate planning lawyer.
Steven K. Hardy is Chair of the Corporate, Tax & Estate Planning Practice Group at BoltNagi, a respected and established tax and estate planning law firm serving individuals and businesses throughout the U.S. Virgin Islands.