Latest news with #DeathTaxRepealAct
Yahoo
07-05-2025
- Business
- Yahoo
Repealing the estate tax could create headaches for the rich – as well as worsen inequality
Nothing is more certain than death and taxes, Benjamin Franklin famously declared. And, since 1916, the federal government has imposed an estate tax on the transfer of property owned at death. But the Trump administration and Republican lawmakers may be on the verge of changing all that. GOP legislators are now considering a massive bill that includes major tax law changes and could pass by June or July 2025. Among the measures under consideration in both the House and Senate is the Death Tax Repeal Act, which would end the federal estate tax and reduce the tax rate on lifetime gifts. If the Death Tax Repeal Act were to become law, it would happen at a pivotal moment. In the coming years, baby boomers are expected to leave an estimated US$84 trillion to their heirs, in what's been called the largest wealth transfer in human history. As law professors who specialize in trusts and estates, we're interested in what might happen next. Interestingly, while the long-term impact to the federal budget would be significant, repealing the estate tax would complicate estate planning for the wealthy taxpayers who might not save all that much money. To understand why, let's consider how the estate tax works now. Estate planning under current law The estate tax – which opponents of the policy have long derided as 'the death tax' – is imposed on property that is transferred at death. It is part of the federal gift and estate tax system, which imposes a 40% tax on gifts made during life or transferred at death. Supporters of the estate tax argue that it reduces inequality and encourages charitable giving. But most Americans, even the very rich, will never pay any gift or estate tax. That's because millions of dollars of assets transferred after death are completely exempt from it. For 2025, the cumulative gift and estate tax exemption is $13.99 million for individuals and $27.98 million for married couples. The current exemption doubled under the Tax Cuts and Jobs Act, which President Donald Trump signed into law in 2017. And it sunsets this year. Unless Congress passes new legislation, the exemption amount will go back to its 2017 base of $5 million for individuals, plus an inflation adjustment. That would increase the number of estates on which it would be levied. If the Death Tax Repeal Act passes, of course, then there will be no federal transfer tax imposed on estates. The estate tax is a lightning rod on Capitol Hill, even though it doesn't affect many Americans. In 2022, the U.S. Treasury collected $22.5 billion in estate tax revenues from 3,170 estates. More than 3 million people died, so only 0.1% of decedents left enough assets for their estates to pay the tax. The big freeze: How the ultrarich reduce their tax liability Beyond taking advantage of this generous exemption, wealthy taxpayers currently use several planning techniques to reduce or eliminate estate taxes. A common strategy involves minimizing tax on assets that are likely to grow in value. Suppose, for example, a person owns property worth $25 million, and they have already used up their exemption (currently $13.99 million). If that $25 million property appreciates in value to $125 million, and the person waits until death to transfer it to the next generation, the entire investment – all $125 million – would be subject to the 40% estate tax. To reduce those taxes without entirely giving up control, sophisticated 'estate freeze' planning techniques allow owners to keep some powers over the gifted property while transferring it for gift tax purposes before assets appreciate in value. In our example, if the $25 million asset were transferred through a freeze device such as an intentionally defective grantor trust, then the only tax would be a 40% gift tax on the $25 million. All of the appreciation – the other $100 million – would incur no gift or estate tax. Other estate planning techniques could further reduce the valuation for transfer tax purposes through minority interest, lack of marketability and other discounts. It's through techniques like this that wealthy Americans are able to pass along approximately $200 billion each year in inherited assets without paying estate taxes. The Death Tax Repeal Act would not directly affect the tax treatment of charitable giving at death – over $40 billion – but it could alter incentives for philanthropic giving. Repealing the estate tax could upend existing estate plans If Congress repeals the estate tax but keeps the gift tax as proposed, many estate freeze planning techniques previously used by the ultrarich would become obsolete. There would be no incentive to make a lifetime gift of property that would appreciate: Individuals who hold onto their property until death would avoid both federal transfer and capital gains taxes. As a result, repealing the estate tax would turn existing estate plans on their head. Estate freeze strategies are premised on a calculated trade-off: To reduce or eliminate estate taxation at death, wealthy donors choose to make lifetime gifts even though doing so alters lifetime ownership rights, generates gift tax liability and sacrifices other tax benefits at death. Without an estate tax, existing estate freeze plans lock in the costs of lifetime gifting without any payoff at death. What's more, some estate freeze plans can't be changed. For example, an intentionally defective grantor trust must be irrevocable to freeze valuation for gift tax purposes. So while repealing the estate tax might seem appealing to wealthy Americans, the actual tax benefit could be modest at best for taxpayers who established estate plans under the current system. Financial advisers have also expressed concern about creating new estate plans designed to benefit from estate tax repeal because a future Congress could revive the tax. Repealing the estate tax could also have macroeconomic implications. Tax incentives to retain ownership until death could tie up capital in ways that dampen economic growth. Individuals tend to become increasingly risk-averse with age, so the Death Tax Repeal Act could skew investments toward safer asset classes. That could deprive younger generations of access to capital for new ventures, such as startups. The bottom line is that repealing the estate tax may hurt both taxpayers and the government. People with sufficient wealth to exhaust the high exemption are likely to have established estate plans that can't be changed to benefit from estate tax repeal. Meanwhile, for new estate plans that seek to retain property ownership until death, the government will lose an important source of tax revenue – $22.5 billion in 2022 – collected from a tiny number of very wealthy estates that can afford to pay the tax. And, of course, repeal would also abandon the original purpose of the estate tax, which sought to reduce extreme concentrations of wealth. This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Reid Kress Weisbord, Rutgers University - Newark and Naomi Cahn, University of Virginia Read more: The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
Yahoo
06-04-2025
- Business
- Yahoo
Clients aren't likely to face estate taxes. But they still need a plan
The political calculus involved with the details of estate planning next year and beyond may be distracting financial advisors and clients from a larger, simpler conversation, one expert says. On the off chance that the federal estate-tax exemption levels of $13.99 million for individuals (and double for couples) revert to half those amounts when Tax Cuts and Jobs Act provisions expire in 2026, only 0.2% of households would face potential duties upon transfer of assets, according to Ben Rizzuto, a wealth strategist with Janus Henderson Investors' Specialist Consulting Group. He predicted that most financial advisors and high net worth clients, such as those he works with and others across the industry, will see no changes. With few other revenue-raising provisions available to President Donald Trump and Republican lawmakers, they're not likely to shield all estates from payments to Uncle Sam — as much as they might like to play undertaker to the "Death of the Death Tax," Rizzuto said, using the label for estate taxes adopted by critics favoring bills like the "Death Tax Repeal Act." Lawmakers' decisions on future exemptions from the taxes (and when they make those decisions) remain out of advisors' control. Meanwhile, they must remind clients that estate planning is much more than having a will and avoiding taxes, Rizzuto said. "For financial advisors and clients, I would expect for many of them not to have to worry about federal estate taxes next year," he said in an interview. "Even though they may not have to worry about it, there are still a lot of good conversations to be had." READ MORE: Tax Cuts and Jobs Act expiration: A guide for financial advisors Trust tools that reduce the value of the assets that will transfer to spouses or other beneficiaries upon a client's death, combined with the available statistics about the shrinking share of estates subject to taxes, could bring some peace of mind to clients. The 2017 tax law itself pushed down estate tax liability as a percentage of gross domestic product to a quarter of its 2001 level, according to an analysis by the "Budget Model" of the University of Pennsylvania's Wharton School. Just two years after the law's passage, the number of taxable estates had plummeted to 1,275 — or 1% of the number at the beginning of the century. At the same time, advisors could raise any number of questions with clients about their estates that involve varying degrees of expertise and collaboration with outside professionals. And many surveys have found that clients are expecting them to do so. For example, at least 70% out of a group of 10,000 adults contacted in January by WeAreTalker (formerly OnePoll) on behalf of online legal information service Trust & Will said advisors should offer estate planning. In addition, 40% of the group said they would switch to an advisor who provided that service. "We're seeing a fundamental shift in client expectations," Trust & Will CEO Cody Barbo said in a statement. "The findings are clear. Advisors who fail to integrate estate planning into their practice aren't just missing an opportunity; they are facing a threat to their client base as wealth transfers to younger generations over the next two decades." READ MORE: Ethical wills can be a crucial tool for estate planningIn that context, advisors and their clients should steer clear of trying to make sense of a complicated, ever-changing flow of news from Capitol Hill as Trump and the GOP pursue major tax legislation with a year-end deadline, Rizzuto said. If clients truly could be on the hook for estate taxes, a grantor retained annuity trust, a spousal lifetime access trust or gifting strategies may eliminate the possibility. One method involved with the latter could set them up in the future to receive stock that is "highly appreciated with lower basis," Rizzuto noted, citing the example of equities that have gained a lot of value that a client could give to their parents. "Why not gift them upstream?" Rizzuto said. "My father holds it. I tell him, 'Dad, you have to do these things: Live for another 12 months, make sure you don't sell, make sure that you update your will or your instructions to gift it back to me when you die.' That's another idea that we've been talking about with advisors." From another perspective, these possible paths forward may beckon to clients this year, if they are tuning into Beltway news about the progress of the tax legislation, he said. To bypass the risk of client perceptions that their advisor isn't doing any tax planning at all, Washington's complex maneuvering around the future rules is, "if nothing else," a "great opportunity for advisors to bring this up at a very high level," Rizzuto said. "Advisors will really need to go back to basics and have some foundational conversations with clients," he said, suggesting their goals with taxes as one key point of discussion. "'What is it that we actually control within your financial and tax plan?' When it comes right down to it, it's really just incomes and deductions."
Yahoo
14-02-2025
- Business
- Yahoo
Arkansas senators Boozman, Cotton co-sponsors on bill that would repeal federal death tax
WASHINGTON D.C. (KNWA/KFTA) — Senators Tom Cotton (R-Arkansas) and John Boozman (R-Arkansas) joined U.S. Senate Majority Leader John Thune (R-South Dakota) and 45 other Senate Republicans to reintroduce legislation that would repeal the federal death tax. Called the Death Tax Repeal Act, Cotton said the bill would end a 'punitive' tax that can hit family-run farms, ranches, and businesses as the result of the owner's death. 'Families shouldn't have to sell major portions of their businesses or farms after the death of a parent just to afford the estate tax. Breaking apart a family's livelihood is neither fair nor good for the economy,' Cotton said. 'This legislation would end the federal death tax, making it much easier to preserve a family's legacy and way of life.' Arkansas senators Boozman, Cotton join in introducing gun suppressor legislation 'Arkansas's farm families and small businesses should have the opportunity to preserve their legacies for the next generation instead of getting hit with a penalty that jeopardizes their livelihoods,' Boozman said. 'They need certainty and relief from this counterproductive burden. Repealing the death tax supports our agriculture producers and entrepreneurs so they can continue to grow their operations and benefit their local economy.' Cotton said the bill would fully repeal the Estate Tax, repeal the Generation-Skipping Transfer Tax (GSTT) for when a grandparent transfers assets to a grandchild and maintain step-up basis. Click here to read the full bill. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Yahoo
13-02-2025
- Business
- Yahoo
Inheritance tax hits chopping block as more than 200 Republicans push for repeal
FIRST ON FOX: Republican lawmakers are mounting a massive effort to repeal the federal inheritance tax, colloquially known as the "death tax." Rep. Randy Feenstra, R-Iowa, is leading more than 170 House Republicans on the "Death Tax Repeal Act," which is also backed by the House's top tax writer, Ways & Means Chairman Jason Smith, R-Mo. An inheritance or estate tax is levied upon the beneficiary who receives assets upon a person's death. Republicans have long criticized the estate tax as a needless financial burden on grieving families, particularly hitting small family-owned businesses. It comes as Republicans work on extending President Donald Trump's 2017 Tax Cuts and Jobs Act, whose provisions expire at the end of this year. Among the measures sunsetting in 2026 is a doubling of the estate tax exemption. Scoop: Key Conservative Caucus Draws Red Line On House Budget Plan Supporters of the federal estate tax point out that it affects a relatively small number of estates. Penalties are triggered for estates worth roughly $13.9 million at the time of death, according to the latest IRS data. Read On The Fox News App A counterpart bill in the Senate is being led by Majority Leader John Thune, R-S.D., and is backed by 44 senators. Both Feenstra and Thune argued it was an unnecessary tax that unfairly affected family farms and small businesses in their home states of Iowa, South Dakota and elsewhere. Black Caucus Chair Accuses Trump Of 'Purge' Of 'Minority' Federal Workers "The death tax is an egregious double tax that unfairly targets American family farms and small businesses and directly threatens long-held farming traditions in rural Iowa and across the country," Feenstra told Fox News Digital. "It is ridiculous that the federal government sends grieving families a massive tax bill when a loved one passes away." He said it amounted to "double taxation." "Family farms and ranches play a vital role in our economy and are the lifeblood of rural communities in South Dakota," Thune told Fox News Digital. "Losing even one of them to the death tax is one too many. It's time to put an end to this punishing, burdensome tax once and for all so that family farms, ranches and small businesses can grow and thrive without costly estate planning or massive tax burdens that can threaten their viability." If Republicans fail to extend Trump's tax cuts before the end of this year, the estate tax would affect any estates worth roughly $7 million or more, according to Modern Wealth Law. House Ways & Means Committee Republicans shared a memo late last year that said everyday American households could see taxes rise by over 20% if the tax cuts expired. Feenstra and Thune's bill would abolish the tax altogether, article source: Inheritance tax hits chopping block as more than 200 Republicans push for repeal
Fox News
13-02-2025
- Business
- Fox News
Inheritance tax hits chopping block as more than 200 Republicans push for repeal
FIRST ON FOX: Republican lawmakers are mounting a massive effort to repeal the federal inheritance tax, colloquially known as the "death tax." Rep. Randy Feenstra, R-Iowa, is leading more than 170 House Republicans on the "Death Tax Repeal Act," which is also backed by the House's top tax writer, Ways & Means Chairman Jason Smith, R-Mo. An inheritance or estate tax is levied upon the beneficiary who receives assets upon a person's death. Republicans have long criticized the estate tax as a needless financial burden on grieving families, particularly hitting small family-owned businesses. It comes as Republicans work on extending President Donald Trump's 2017 Tax Cuts and Jobs Act, whose provisions expire at the end of this year. Among the measures sunsetting in 2026 is a doubling of the estate tax exemption. Supporters of the federal estate tax point out that it affects a relatively small number of estates. Penalties are triggered for estates worth roughly $13.9 million at the time of death, according to the latest IRS data. A counterpart bill in the Senate is being led by Majority Leader John Thune, R-S.D., and is backed by 44 senators. Both Feenstra and Thune argued it was an unnecessary tax that unfairly affected family farms and small businesses in their home states of Iowa, South Dakota and elsewhere. "The death tax is an egregious double tax that unfairly targets American family farms and small businesses and directly threatens long-held farming traditions in rural Iowa and across the country," Feenstra told Fox News Digital. "It is ridiculous that the federal government sends grieving families a massive tax bill when a loved one passes away." He said it amounted to "double taxation." "Family farms and ranches play a vital role in our economy and are the lifeblood of rural communities in South Dakota," Thune told Fox News Digital. "Losing even one of them to the death tax is one too many. It's time to put an end to this punishing, burdensome tax once and for all so that family farms, ranches and small businesses can grow and thrive without costly estate planning or massive tax burdens that can threaten their viability." If Republicans fail to extend Trump's tax cuts before the end of this year, the estate tax would affect any estates worth roughly $7 million or more, according to Modern Wealth Law. House Ways & Means Committee Republicans shared a memo late last year that said everyday American households could see taxes rise by over 20% if the tax cuts expired. Feenstra and Thune's bill would abolish the tax altogether, however.
