If you earn enough money you will be liable to pay income tax on the money made through employment. Simple? No, not really. The tax code is anything but simple; however, most of us are at least semi-fluent in the concept of income taxes. The same cannot often be said about estate taxes. Accordingly, we think it's a good time to give a little history lesson about estate taxes AND more importantly, let you know that the estate tax laws are set to change at the end of 2025.
A Modern History of Estate Taxes
In 1898, a federal legacy tax was proposed to raise revenue for the Spanish–American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.1
In 1913, however, the 16th Amendment to the Constitution was ratified—the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” This amendment paved the way for the Revenue Act of 1916, which established an estate tax that, in one way or another, has been part of U.S. history since then.1
In 2010, the estate tax expired briefly. But in December 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The new law retroactively imposed tax legislation on all estates settled in 2010.2
In 2012, the American Tax Relief Act made estate tax a permanent part of the tax code.3
Beware of Key Estate Tax Changes
As part of the 2017 Tax Cuts and Jobs Act, estate tax rules were adjusted again. The estate tax exemption was raised to $11.2 million, a doubling of the $5.6 million that previously existed. Married couples were able to pass as much as $22.4 million to their heirs. As of 2023, that rate has risen to $12.92 million per individual (and $25.84 million for married couples). The Act is set to expire in 2025. If you haven't constructed or looked at your personal financial plan recently, you may not realize that you have an estate tax time bomb that could hurt you and your beneficiaries. If you’re uncertain about your estate strategy, it may be a good time to Schedule A Meeting to better understand what you can do to pay less taxes.4,5