How the U.S. Taxes Estates and Heirs, and What May Change
The estate tax fuels passions on both sides of America’s political divide at a level far in excess of the dollar figures.
The tax levied on estates of wealthier Americans upon death brings in a relatively small amount of money -- about $13.2 billion in 2019, less than one one-hundredth of what was raised through individual income taxes ($1.7 trillion). But the estate tax fuels passions on both sides of America’s political divide at a level far in excess of the dollar figures. President Joe Biden wants to give more teeth to the tax on multimillion-dollar estates and is expected to propose raising the rate while cutting the amount that wealthy families can pass on to heirs tax-free by more than half.
The tax applies to the transfer of property -- cash and securities, real estate, insurance, trusts, annuities and business interests -- at death. The vast majority of Americans fall far short of the wealth required to trigger the tax; for those who do meet those thresholds, the tax can reach 40%. The 2017 tax overhaul that was President Donald Trump’s signature legislative achievement doubled the amount that wealthy people can pass to their heirs tax-free. In 2021, an individual can leave $11.7 million to heirs without the estate tax kicking in; for a married couple, that amount doubles. The estate tax changes in the 2017 law are set to expire at the end of 2025.