Estate taxes affect many American families. While only about 15,000 Federal estate tax returns were filed in 2010, many other families face the potential for having to pay estate taxes. This is true for two reasons. First, many states impose estate taxes on much smaller estates. Second, many more families would have to pay estate taxes if they did not do planning in advance.
The estate tax once had a much greater reach. In fact, in 2001, nearly 110,000 estate tax returns were filed. However, a change in law at that time increased the threshold for taxability, causing the estate tax to be levied on far fewer families during the course of the first decade of this century.
Despite the relatively low number of families who actually pay estate taxes, the tax returns that were filed in 2010 reflected some $130 billion in assets. This number does not, however, directly reflect the tax revenue raised by the estate tax because the marital deduction and charitable bequests substantially reduce the taxable portion of decedents’ estates. In fact, less than half of estate tax filers had to pay any estate tax in 2010. The estate tax raised about $13 billion that year.
The estate tax is likely to affect far fewer people in 2011 and 2012 because the 2010 Tax Relief Unemployment Insurance Reauthorization and Job Creation Act raised the exemption amount for federal estate taxes to $5 million per person (and a combined $10 million for a couple). The exemption amount was $3.5 million in 2009. The increased exemption amount means that fewer people will file estate tax returns and pay estate taxes.
The current estate tax law is scheduled to expire at the end of this year, and the exemption amount will revert to $1 million. Taxes will be levied at 55%. It is widely expected that Congress will act to avoid that occurring, but particularly during an election year it is impossible to predict what will happen.