NCPA - National Center for Policy Analysis


April 20, 2010

Next year many more families may need to worry about federal estate tax and at the same time could have fewer ways to minimize its bite.  In fact, the past decade may come to be looked upon as the golden era of wealth transfer, says Forbes. 

Some of the changes that could take place next year are already built into the law.  Others could emerge through a revenue-driven form of creeping estate tax reform, rather than through a comprehensive thoroughly debated overhaul of the federal estate tax.  As of now, there is no federal estate tax, although 19 states and the District of Columbia continue to tax estates. 

How did we get here? 

  • Under the 2001 Bush tax cuts, the amount exempt from federal estate taxes went up gradually over a period of eight years and then took a big jump to $3.5 million in 2009, from $2 million in 2008.
  • In 2010 both the federal estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were eliminated, but for one year only.
  • As the Bush tax cuts expire at the end of 2010, both taxes are scheduled to return in 2011 at the same, unfavorable rates that applied 10 years earlier.
  • At that point, the amount that is exempt from each of these taxes will be $1 million, and the tax on the rest will be 55 percent (and 60 percent in a certain phase-out range).  

True, money left to a spouse or charity isn't subject to estate tax.  But a widow or widower with a home and a retirement account could easily be leaving more than $1 million to children, and that inheritance would be taxed, says Forbes. 

Estimates from the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, show how many upper-middle class families could be affected: 

  • In 2009, when the exemption was $3.5 million, only 5,500 estates paid tax -- a total of $14 billion.
  • In 2011, if the exemption reverts to $1 million, more than 44,000 estates will owe a total of $34 billion. 

Source: Deborah L. Jacobs, "Estate Tax Could Come Back With Sharp Bite," Forbes, April 18, 2010. 

For text: 


Browse more articles on Economic Issues