Certain Uncertainty Avoiding Traps for the Unwary.

• Author: Allmon, Michael B.
• Position: Estateplanning

in recent years, the estate tax has become increasingly enigmatic. Taxpayers and planners alike often find ourselves consulting extemporaneous sources such as newspaper headlines or crystal balls in futile attempts to predict the upcoming iteration of estate tax law. With such uncertainty on the horizon, the question becomes how one may even begin to approach modern estate planning. For this answer, it may be helpful to start with a brief history of the estate tax.

Historical Context

The estate tax began with a stamp tax in 1797, which was then repealed in 1802. This tax did not return until the Civil War. In was reinstated in 1864, then repealed again at the end of that war. The modern estate tax system really began in 1898 to raise revenue for the Spanish-American War, but also was repealed at the end of that war in 1902. The estate tax that we have today was established by the Revenue Act of 1916. It expired in 2010, but retroactively was reinstated, and it was made permanent in 2012.

Since 2012, there have been several attempts to change our federal estate, gift and generation-skipping transfer tax exemptions. These recent attempts by Congress remind us that even permanent taxes are subject to change, and that estate related taxes are likely the most political taxes in the modern United States' system of taxation.

The Politics of Taxes

Why are transfer taxes considered to be such an extremely political tax? For two primary reasons:

1. The amount of revenue derived is not significant to the U.S. budget (income and Social Security taxes on individuals account for more than 66 percent, consumption, property and corporate taxes contribute about 34 percent, with the estate and gift tax revenues at less than one-half of 1 percent of receipts and one-tenth of 1 percent of GDP, per the Congressional Budget Office as reported in their most recent report from 2020); and 2. The number of citizens who are subject to these taxes is small (about two out of every 1,000 citizens were even subject to the estate tax at all according to the Joint Committee on Taxation of the US Congress in 2015, the most recent year that data is available for, and even fewer today with the significantly higher exemption levels). Further the only taxpayers who are subject to these taxes are those who are ultra-wealthy (taxable estates more than over $ 12 million this year if unmarried and potentially $24 million for married couples). Thus, they are "easy targets" for...