Being Cognizant of the Federal Estate Tax Law By Leon B. Resnick
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23.4m/married couple) will essentially be slashed in half on Jan. 1, 2026.
wo years ago, when the Kansas City Chiefs won Super Bowl LIV, celebration ensued around Chiefs Kingdom. A season of excitement, challenges and epic comebacks culminated with the ultimate prize.
This will increase taxes for some business owners and introduce a tax to others, that currently would not be taxed. For those over the exemption amount, the tax rate is 40 percent.
What if your business mirrored Kansas City’s story, however, there wasn’t a celebratory parade at the end? The federal estate tax can be a parade stealer. As a business owner, you can run your company and invariably experience highs, lows, challenges and struggles and still come out on top -- or think you have.
There is momentum building on expediting the reduction scheduled for Jan. 1, 2026, combined with a much lower exemption and higher tax rate. The federal estate tax has always been fluid. The exemption levels have ebbed and flowed. For example, from 1987-1997, the exemption was only $600,000 with a top rate of 55 percent. In 2010, there was a one-year complete repeal (the federal estate tax has been repealed several times, and has always reappeared), and between 2011 and 2021, the exemption amount has ratcheted up, while maintaining the 40 percent tax rate.
The federal estate tax was enacted in 1916, as a way to redistribute wealth in our country. There was a real concern that too few controlled too much of our country’s wealth (sound familiar?) and via the federal estate tax, that wealth would be redistributed (taxed) upon the death of an individual. What was once designed to zero in on the extreme elite, eventually became a tax on the ‘non-extreme elite’. Although statistically, a very small percentage of United States citizens actually will pay the estate tax, more land owners and business owners would be ravaged by the estate tax, as their assets exceeded exemption amounts. Today, in November 2021, those exemption amounts are the highest in our country’s history. Under current law, however, those high levels (11.7m/person and -
This alone can be confusing and it’s just one of the many reasons why we always insist our business owner clients, and the business owner audiences we present to, be proactive with their planning.
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Like the fluidity of the history of the federal estate tax, owning a business can be similar. Some days may run smoothly, and others may include an unexpected list in which anywhere from one to 17 items need to be addressed. You never can tell.
