Notable Estate Planning Legislation
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 can impact your estate plan.
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 Estate and gift taxes play a significant
role in individual estate planning, but their contribution to the overall federal budget is relatively
small, typically accounting for approximately 1 percent of total federal revenue.2 In 2023, it was
estimated that only around 0.14 percent of estates were taxable.3
The federal estate tax was advocated by progressive reformers during a time of great wealth
concentration and inequality (think Gilded Age figures like Carnegie and Rockefeller).4 An initial
exemption, or exclusion amount, of $50,000 was allowed.5
In the decades since the estate tax's inception, Congress has made additions and revisions to
its structure. These changes include a tax on so-called inter vivos, or lifetime, gifts in 1932 to
prevent wealthy taxpayers from circumventing the estate tax by gifting assets during their
lifetime; a marital deduction introduced in 1948 that allows tax-free transfers to qualifying
surviving spouses; and the 1976 Tax Reform Act, which created a unified estate and gift tax
exemption.6
Over the years, the estate tax exemption amount 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 the much lower pre-TCJA levels in 2026 unless
Congress acts to extend or modify them.
The Income Tax
While not a direct tax on estates, the income tax has ramifications throughout the estate
planning process, from the taxation of estate assets and trusts to beneficiary taxes, capital
gains, and charitable contributions.
The US did not have a permanent federal income tax until 191313 - more than a century after
Benjamin Franklin's famous "death and taxes" quip. That was the year the Sixteenth
Amendment was passed, giving Congress the authority to levy taxes on corporate and
individual income. Today, income tax revenue makes up nearly half of all federal revenue and is
the largest source of government funding.14
Income taxes are not quite as inevitable as Franklin would have us believe. Tens of millions of
Americans owe little or no federal income tax each year.15
Like the estate tax, the income tax has its roots in war efforts and a Progressive Era push for
wealthy individuals to pay taxes and tariffs.16 Rates started at 1-7 percent on incomes above
$3,000.17 Top rates soared during World War I and World War II and peaked at 94 percent for
top taxpayers in 1944,18 the year Congress created the standard deduction.19
Other key changes to the federal income tax over the years include the earned income tax
credit in 1975;20 the 1986 Tax Reform Act that simplified and restructured the tax code and
dropped the top rate to 28 percent;2 the American Taxpayer Relief Act of 2012, which set the
top rate at 39.6 percent post-recession;22 and 2017's TCJA.
The TCJA temporarily dropped tax rates across seven brackets and permanently lowered the
corporate tax rate. It also increased the standard deduction and the child tax credit, capped
state and local tax deductions, added deductions for pass-through income and business
deductions, and nearly doubled the estate tax exemption.23
Navigating an Uncertain Tax Future
In a spring survey, voters said by a nearly three-to-one margin that they favor permanently
extending the TCJA.24 President Trump and Republicans in Congress are also pushing for
TCJA extensions.
If Congress acts at all, it may postpone TCJA extensions, either short-term or long-term, until
the last few weeks or even days or hours of this year. Historically, major tax bills in a new
administration's first year (e.g., the TCJA in December 2017) often land in the fall, or lame-duck,
session.25 President Trump did not sign the TCJA into law until three days before Christmas
2017.
Congress may wait until the eleventh hour to act, but you do not have to. You can work with an
estate planning attorney on contingency plans that account for different scenarios, including the
estate tax exemption and individual tax rates remaining at current levels or reverting to preTCJA levels.
Potential strategies include shifting 2026 income into 2025, prepaying expenses,
contributing to tax-advantaged accounts, using the bonus depreciation and qualified business
income (QBI) deductions, gifting assets, and creating and funding irrevocable trusts.
Changes to your estate plan can take weeks or months to implement. Delaying action on your
plan could put you at a disadvantage if you are caught unprepared for what Congress does or
does not do. Changes do not have to be permanent. Some can be a temporary hedge, while
other proactive measures may prove to be prescient.
To talk about specific tax policies and how they might affect your estate plan, please contact 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 Counselors 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.
