Passing down a large fortune gets easier
The teams had to be big, because the work was so complicated. A single aging rich person would often hire more than a dozen people – accountants, estate administrators, insurance agents, bank attorneys, financial planners, stockbrokers – to make sure they paid as little as possible in taxes when they died.
But David Klasing, an estate tax attorney in Orange County, California, said he’s seen a sharp drop in these kinds of cases. The steady erosion of the federal estate tax, shrunk again by the Republican tax law last fall, has dramatically reduced the number of Americans who have to worry about the estate tax – as well as work for those who get paid to worry about it for them, Klasing said.
In 2002, about 100,000 Americans filed estate tax returns to the Internal Revenue Service, according to the IRS. In 2018, only 5,000 taxpayers are expected to file these returns, according to projections by the American College of Trust and Estate Counsel, an organization of estate attorneys, based on IRS data.
“You had almost every single tax professional trying to grab as much of that pot as they could,” Klasing said. “Now almost everybody has had to find other work.”
A series of changes to federal law over two decades means that Americans need to be richer than ever to be hit by the estate tax, and therefore need fewer gimmicks than ever to avoid it, tax experts and attorneys say. That also means the government is bringing in less money from the rich when they die.
Before last year’s GOP tax law, an individual could pass on up to $5.45 million without paying the estate tax, which would then take a cut of up to 40 percent from wealth above that threshold. The law doubled that minimum, exempting all estates worth less than $11.2 million. Couples filing jointly can now pass on more than $22.4 million before the tax sets in.
To conservatives, this was a needed rollback of a “death tax” that takes a second federal bite out of wealth that was typically already taxed at the time it was acquired. To liberals, it will exacerbate inequality by allowing wealthy individuals to pass on vast fortunes to descendants.