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The Evolution of Estate Tax

The Evolution of Estate Tax

probate lawyer

The Estate Tax has gone through numerous changes throughout the past 100 years. Rates of taxation have changed, along with attempts to repeal or reform the law. Probate lawyers must constantly follow changes to the laws to advise their clients on how to best plan their estates.

The Revenue Act of September 8, 1916

As an effort to bolster government coffers before entering World War I, the Revenue Act included provisions to enact an estate tax at the rates of 1 to 10 percent for taxable estates totaling $50,000 or more. By March 3, 1917, the rates were increased to 1.5 to 15 percent. As the Senate sought to further increase the tax rate, the Finance Committee weighed the ethicality of increasing the rate further. If the tax were classified as a war tax, hence an emergency tax, it would be unfair to the estates of the soldiers who were dying defending the country. Therefore, by making the estate tax a permanent tax, fairness for all would be achieved but not taking advantage of a certain group of people.

Tax Reform Studies and Proposals

This multi-volume study was published by Congress two weeks after President Nixon’s inauguration. It contained various estate and gift tax proposals, with some that eventually were enacted, including:

  • Taxation of appreciation at death or at time of gifts
  • Unification of the estate and gift taxes
  • Unlimited marital deduction
  • Orphan exclusion
  • Stricter deduction rules for gifts left to charity

The Reagan Years

In 1984, “Tax Reform for Fairness, Simplicity, and Economic Growth” was published and sought to simplify complicated estate tax laws. Up to $1 million would be exempt and a flat rate equal to 80 percent of the highest rate would be imposed.

2001 Tax Act

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the gift tax rate was reduced to 35 percent with an exemption cap at $1 million. The federal tax credit was repealed for state death taxes.


Under the Estate Tax and Extension of Tax Relief Act of 2006 (ETETRA), the estate tax exemption was raised to $5 million but would be raised in annual increments of $250,000 from $3.75 million in 2010 t0 $5 million by 2015.

What 2016 Holds in Store

For 2016, a probate lawyer will advise their clients that they are allowed an estate and gift tax exemption of $5.45 million per individual, up from $5.43 in 2015. Married couples can shield up to $10.9 from federal taxes.

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