The U.S. estate tax, otherwise known as the “death tax” to those who want to eliminate it, gets a lot of attention from American politicians and more than a few articles in the press. There are conference sessions entirely devoted to fancy strategies that will allow more assets to be passed on to heirs than the $11.4 million of a single person’s estate that is currently exempt ($22.8 million per couple).
The most common argument against the estate tax is that it requires small businesses or family-owned farms to come up with an inheritance tax that will, ultimately, crush the business or farm as it passes to heirs. Less commonly, you might hear someone question the fairness of the government confiscating some portion of the amounts over roughly $23 million that unusually wealthy people have accumulated.
But of course, most people won’t ever have to worry about paying estate taxes. There are six million small business and two million family-owned farms in America. In the last year of the old law, in 2017, when the estate tax exemption was only half as high as it is today, only 80 small business and farms nationwide faced any estate tax. With the new exemption, that number could fall to single digits. This is hardly a killer of American enterprises.
Of the 2.8 million Americans who die each year, only about 5,200 owed any estate taxes under the old (lower) exemptions. That number will come down a lot under the new one.
And of course for Americans who are projected to be worth nearly $23 million at death, the easiest way to avoid paying estate taxes to the government is to aggressively give money to charity before death. Recently, Warren Buffett decided to dispose of his entire $85 billion fortune via the Bill & Melinda Gates Foundation. His estate tax will be zero. Alternatively, you could resort to a lot of complex and fancy tax strategies that will leverage your estate tax exemption, including the fairly simple method of giving to your heirs each year before you die.
The key point is that when you hear a politician decry the unfairness of the estate tax exemption’s impact on small businesses, you should probably change the channel.
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