Notable Estate Planning Legislation
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No matter the time of year, taxes are always a hot topic. While we usually think about taxes in
terms of how they affect us today, it can be equally important to understand the history of tax
laws that impact estate planning.
The Estate and Gift Tax
Taxation of property transfers at death dates as far back as 700 BCE in ancient Egypt. It was
also used in Rome and feudal Europe.
The United States estate tax was introduced in 1916.1 It was advocated by progressive
reformers during a time of great wealth concentration and inequality (think Gilded Age figures
like Carnegie and Rockerfeller).2 An initial exemption, or exclusion amount, of $50,000 was
allowed.3
In the decades since the estate tax's inception, Congress has made important additions and
revisions to its structure that reflect wider cultural debates about wealth distribution, economic
stimulus, and government revenue.
The first of these was a tax on so-called inter vivos, or lifetime, gifts, which became part of the
transfer tax system in 1932 to prevent wealthy taxpayers from circumventing the estate tax by
gifting assets during their lifetime.4 The marital deduction, introduced in 1948, allows tax-free
transfers to qualifying surviving spouses.5 And in 1976, the Tax Reform Act created a unified
estate and gift tax exemption.6
Over the years, the estate tax exclusion has increased from $50,000 in 1916 to $2 million in
20067 to $5.49 million in 2017 - the year before the Tax Cuts and Jobs Act (TCJA) went into
effect.8 The annual gift tax exclusion has increased as well, from $3,000 per individual in 1976
to $12,000 in 20069 to $14,000 in 2017.10
Today, thanks to the TCJA, the estate and gift tax unified exemption is at an all-time high. The
lifetime exclusion is currently $13.99 million for individuals and $27.98 million for married
couples,11 while the annual gift tax exclusion is $19,000 per person and $38,000 for married
couples.12 Taxes on generation-skipping transfers match the estate tax exemption.
However, these allowances are set to revert to much lower pre-TCJA levels in 2026 unless
Congress acts to extend or modify them.
The Income Tax
Estate and gift taxes affect individual estate planning, but their contribution to the overall federal
budget is relatively small, typically accounting for approximately 1 percent of total federal
revenue.13 In 2023, it was estimated that only around 0.14 percent of estates were taxable.14
Federal income tax is a different story. Although not as inevitable as the famous Benjamin
Franklin "death and taxes" quote would have us believe - tens of millions of Americans owe little
or no federal income tax each year15 - income taxes account for roughly half of all federal
revenue and are the largest source of government funding.16
The US did not have a permanent federal income tax until 1913.17 That was the year the
Sixteenth Amendment was passed, giving Congress the authority to levy taxes on corporate
and individual income.
Like the estate tax, the income tax has its roots in war efforts and a Progressive Era push for
wealthy individuals to pay the taxes and tariffs.18 Rates started at 1 - 7 percent on incomes
above $3,000.19 Top rates soared during World War I and World War II and peaked at 94
percent for top taxpayers in 194420 - the same year Congress created the standard deduction.21
Other key changes to the federal income tax over the years include the earned income tax
credit in 1975;22 the 1986 Tax Reform Act that simplified and restructured the tax code and
dropped the top rate to 28 percent;23 the American Taxpayer Relief Act of 2012, which set the
top rate at 39.6 percent post-recession;24 and the TCJA of 2017.
The TCJA temporarily lowered tax rates across seven brackets and permanently dropped the
corporate tax rate. It also significantly increased the standard deduction and child tax credit,
capped state and local tax deductions, added deductions for pass-through income and business
deductions, and as noted, nearly doubled the estate tax exemption.25
The Future Impact of Taxes on Estate Plans
A US Chamber of Commerce survey shows that voters favor permanently extending the TCJA
by a nearly three-to-one margin.26 President Trump and Republicans in Congress are also
pushing for TCJA extensions.
Historically, major tax bills in a new administration's first year (e.g., the TCJA in December
2017) take months, often landing in the fall, or lame-duck, session. President Trump did not sign
the TCJA into law until three days before Christmas 2017.
If the past is prologue, Congress - if it acts at all - may put off TCJA extensions, either shortterm or long-term, until the last few weeks or even days or hours of the year.
As we keep our eyes on the latest tax developments from Washington, DC, advisors can work
together at the nexus of financial and estate planning to develop contingency plans for clients
that account for different scenarios, including the estate tax exemption and individual tax rates
remaining at current levels or reverting to pre-TCJA levels.
To discuss how we can address gaps in our clients' financial and estate plans, please reach out
to us.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
