Estate Tax FAQs

When someone dies, his or her assets (the person's estate) are distributed to heirs. If the total value of the estate is larger than the tax-exempt amount, an estate tax is imposed on the portion above the exemption before the remaining assets are distributed. Any amount given to a spouse or charity is tax exempt.

The Bush Tax Cuts of 2001 and 2003 resulted in frequent changes to the estate tax exemption and rate.

The individual estate tax exemption – the amount of money an individual can pass to heirs tax free – has been as low as $1 million in 2002 and as high as $3.5 million in 2009. The exemption is effectively doubled for married couples who engage in basic estate planning.

Rates on the amount above the tax-free exemption have varied from 45% to 55%. Below you can find a table listing the estate tax exemption and rate since 2002.

Under the Bush tax cuts, in 2010 there is no federal estate tax. If Congress does not act, when the Bush tax cuts end, in 2011 the estate tax exemption will be $1 million per spouse, and the highest rate on the amount above the exemption will be 55%.

In 2009 one quarter of one percent of all estates owed any estate tax at all. The next table shows the percentage of all estates that would be affected by different potential exemptions in 2011. Each estate tax option for 2011 leaves over 98% of estates untouched, and most leave over 99% unaffected.

The Congressional Budget Office estimates that with a $2 million exemption, only 123 farms per year in the U.S. would owe any estate tax, and the number of small businesses is similarly small. In 2001, the New York Times reported that the pro-repeal American Farm Bureau Federation could not cite a single case of a family farm lost due to the estate tax.

On average, those few small business and farm estates will owe only 14% of the estate, so it is unlikely they will have to sell the business or farm. Plus, they can spread any payments over 14 years. They also benefit from special use valuation, and minority interests and marketability discounts.

Moreover, gutting the estate tax would actually hurt family farms. The estate tax helps make family farms more competitive against mega-scale agriculture, because it moderates ever-larger concentrations of wealth and economic clout. Repeal of the estate tax or exempting farms completely will only encourage further concentration of farm ownership, which reduces competition. An unlimited exemption for farm assets could create a giant loophole from the estate tax because wealthy individuals who expect to owe estate tax could use much or all of their wealth to buy farms before they died. Competition is essential to our nation’s economic growth and security.

The estate tax, at 2002-2009 rates and exemptions, has raised $15-26 billion per year. The variations are due to the changes in exemption and rates caused by the Bush tax cuts, as well as fluctuations in the overall economy that affect the value of assets like stocks and real estate. The table below summarizes estate tax revenue since 2002, using IRS data and an estimate by the Tax Policy Center.

As the law now stands, the estate tax is scheduled to return in 2011 with a $1 million exemption and a top rate of 55%. While this law is on the books, there is widespread agreement in Congress that it will be changed before the end of the year. This means that there will be many estate tax proposals on the table and much legislative discussion on the issue in the upcoming months.

Some want to greatly weaken the estate tax, giving billions of dollars in tax breaks to millionaires and billionaires, while others want to repeal the estate tax altogether. See our summary of current estate tax proposals here.

UFE’s Estate Tax campaign is fighting hard to influence lawmakers and the public in favor of the estate tax. Our goal is to ensure that the US has a strong estate tax that holds the wealthy accountable for their fair share of our tax responsibility.

The responsibility of paying taxes for public services will shift FROM millionaires TO low- and middle-income taxpayers. A strong estate tax is one of the best remedies for economic inequality because it reduces dynastic wealth and helps ensure more broadly shared prosperity.

An ideal estate tax would have a graduated rate structure that taxes very large fortunes at a higher rate. It would also include an exemption high enough to ensure that no more than the richest 2% of estates pay the tax. Some estate tax proposals in Congress include graduated rate structures and reasonable exemptions, and others do not. Check out UFE’s Legislative Proposals page to see some of the estate tax proposals, as well as which ones UFE endorses and opposes.