Estate tax changes part of Congressional tax reform

Here at Brown, PC, we advise wealthy taxpayers and their fiduciaries, including business owners, heirs and beneficiaries, farmers and ranchers, and professionals in the Dallas-Fort Worth area, across Texas and nationally about estate tax matters, which are usually highly complex and sometimes controversial. We represent taxpayers against the IRS in estate tax audits, in settlement negotiations, in related court disputes and in appeals. Our goal is to minimize the estate tax burden as well as related civil and potentially criminal penalties. 

We also provide guidance about property valuation issues and about preventative tax planning mechanisms to minimize the full impact of this tax, including targeted use of lifetime gifts, trusts and charitable giving. 

What is the estate tax?

It has been in the headlines lately that the tax bills just passed in both houses of Congress would significantly reduce estate tax burdens. Before we talk about the changes, let us review the basics of the current law. The Associated Press just published a comprehensive article about the tax now and the proposed modifications. 

Basically, when someone dies, the collective property, cash, stocks, bonds, real estate, business and professional interests, and all other assets that are part of the person’s estate that will pass to his or her heirs is given a fair market value. Currently, about $5.5 million of an estate is exempt from estate taxation (or $11 million for a married couple). Any remaining value is normally taxed at 40 percent, although AP cites the Tax Policy Center as saying that the rate is actually often lower because of tax reduction mechanisms. 

(No estate tax is imposed when an estate is inherited by the surviving spouse.) 

First, only the wealthiest taxpayers are even subject to this tax. According to the AP’s research: 

• The estates of only two of every 1,000 American estates face the tax.
• In tax year 2017, about 80 small farms and small business estates in the country will face estate tax liability. 

What changes are proposed?

The U.S. Senate’s tax bill differs in some ways from that passed in the House of Representatives. Regarding the estate tax, both bills would double the allowed exemption to about $11 million for individual taxpayers and $22 million for married couples. AP reports that the House would totally repeal the estate tax after 2023, but that the Senate would not include an eventual repeal. 

We will monitor what happens to the law in Congress and advise our clients accordingly. Anyone involved with the kind of wealth that potentially could trigger an estate tax should seek legal advice as soon as possible. Early planning may minimize amounts owed, but experienced legal counsel can advocate vigorously on behalf of such a client at any phase of interaction with the IRS on this topic.