A Brief History of Estate Taxes

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹
Tip:Regardless of your net worth, it’s critical to understand your choices when developing an estate strategy.
Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act and added a tax on transfers of real estate and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.²

Fast Fact: Estate Income. In 2012, estate and gift taxes produced an estimated $14 billion in federal revenue. Congressional Budget Office, 2013

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 The end of the war came in 1902, and the legacy tax was repealed later that same year.³ Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then. In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010. It’s possible the estate tax law may be revised at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

Estate Taxes and Overall Federal Revenues

In 2011, estate taxes accounted for less than one half percent of total federal revenue. Estate Taxes and Overall Federal Revenues

Chart Source: Joint Economic Committee, July 25, 2012

Exemption through the Years

Federal estate taxes exempt a share of estates from federal estate taxes. Currently, if an estate’s worth less than $5 million, no federal estate taxes may apply.
Year Exclusion Amount Highest Tax Rate
1916 $50,000 10.0%
1917 $50,000 25.0%
1918-1923 $50,000 25.0%
1924-1925 $50,000 40.0%
1926-1931 $100,000 20.0%
1932-1933 $50,000 45.0%
1934 $50,000 60.0%
1935-1939 $40,000 70.0%
1940 $40,000 70.0%
1941 $40,000 77.0%
1942-1976 $60,000 77.0%
1977 $120,000 70.0%
1978 $134,000 70.0%
1979 $147,000 70.0%
1980 $161,000 70.0%
1981 $175,000 70.0%
1982 $225,000 65.0%
1983 $275,000 60.0%
1984 $325,000 55.0%
1985 $400,000 55.0%
1986 $500,000 55.0%
1987-1997 $600,000 55.0%
1998 $625,000 55.0%
1999 $650,000 55.0%
2000-2001 $675,000 55.0%
2002 $1,000,000 50.0%
2003 $1,000,000 49.0%
2004 $1,500,000 48.0%
2005 $1,500,000 47.0%
2006 $2,000,000 46.0%
2007 $2,000,000 45.0%
2008 $2,000,000 45.0%
2009 $3,500,000 45.0%
2010 $0 or $5,000,000 0% or 35%
2011 $5,000,000 35.0%
2012 $5,120,000 35.0%
2013 $5,250,000 40.0%
2014 $5,340,000 40.0%

Chart Source: Internal Revenue Service, 2014

1,2,3. Internal Revenue Service, 2014

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