The Estate Tax Battle – We Win!

Year Estate Tax Exemption Top Estate Tax Rate
1997 $600,000 55%
1998 $625,000 55%
1999 $650,000 55%
2000 $675,000 55%
2001 $675,000 55%
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 repeal 35% or 0%
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%

There is long term political pressure to repeal the “death tax” as unfair and burdensome.   This pressure resulted in the Economic Growth and Tax Relieve Reconciliation Act of 2001.  Congress enacted a phase out of the estate tax.  While a majority in the Senate favored full repeal, they didn’t have the 3/5 super majority required, so Congress ‘punted’ by phasing the exemption up to $3.5 million in 2009.  The estate tax was repealed for 1 year in 2010.  Then under a “Sunset Provision”, it was to be reinstated to its 2001 original levels in 2010.  Most observers never thought the estate tax would actually be repealed for 1 year, but it was.  And finally, after an eleventh hour congressional fight (right before the estate tax was to be reinstated in 2011) the estate tax battle ended.  The exemption was set at $5 million in 2011 indexed to inflation thereafter.  No estate tax repeal but very high exemptions.

The fascinating aspect of this fight is what was at stake for the combatants.  For the ultra-rich, increasing the exemption a few million dollars wasn’t significant.  The ultra-rich wanted a full repeal or at least lower rates if repeal wasn’t possible.  But for the “merely wealthy” (my clients), a $5 million exemption is tantamount to full repeal.  Normally, the vast resources of the ultra-rich would prevail in such a critical economic political fight.  However, public pressure over extending the Bush-era income tax cuts late in 2010 and lobbyists for small business owners were able to defeat “the 1%”….this time around.   The new estate tax law was a victory for my estate planning clients, who now need not worry about complex estate tax provisions in their wills and trusts and, more importantly, their families will not pay the tax.


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