FREQUENTLY ASKED QUESTIONS ABOUT
- What is the rate of the estate, gift and generation-skipping transfer (GST) tax ("death taxes")?
Effective 2012, the rate of tax is 35% on the value of all assets in excess of the applicable lifetime exclusion amount -- Scheduled to increase to 55% in 2013.
- What is the applicable lifetime exclusion amount?
The applicable lifetime exclusion amount is $5.12 million in 2012 -- Scheduled to drop to $1 million in 2013. It is the amount that an individual can pass, free of gift tax during life or estate tax at death to anyone they choose.
- How much revenue is raised by the estate tax?
About 1% of the government's revenue is generated from the estate tax. In 2008 (latest IRS date available), it was $24.8 billion, just 1.2%.
- Is the estate tax a disincentive for the growth of family businesses?
In a study conducted by The Tax Foundation, it was found that to match the disincentive effect of the estate tax, income taxes would have to be raised up to roughly 70% or almost twice the top marginal income tax rate of 39.6%.
- When is the tax due?
The tax is due 9 months after the date of death, and is payable in cash.
- What is the history of the estate tax?
The estate tax was initiated in 1916 to fund World War I. It was maintained in the tax code through the 20s and 30s to help prevent the concentration of wealth. Since that time, anti-trust laws have eliminated those concerns, but to date, the estate tax remains intact.
- What is the cost to collect the estate tax?
According to a December 1998 Joint Economic Committee report, the cost to comply and collect the tax is equal to the revenue raised.
- What is the general public's attitude towards repeal of the estate tax?
In national polls, focus groups and instant response sessions - 70% of respondents believe that the estate tax should be repealed.
- How many family businesses are there in America?
Within the definition that the family controls the business either by stock or through management, 91% of all businesses in America are family owned.
- How does the estate tax affect the succession of the family business to future generations?
More than 70% of family businesses do not survive the second generation. 87% do not make it to the third generation.
- What is the GST tax?
The generation-skipping transfer tax is a tax on assets that you pass on to your grandchildren (technically known as “skip persons”) at an effective 58% rate, once you have utilized your GST exemption. In 2013, the effective rate is scheduled to return to 80%.
- What is the economic effect of repealing the estate tax?
A study by Douglas Holtz-Eakin and Cameron T. Smith in 2009 found that if estate, gift and GST taxes were repealed it would raise the probability of hiring by 8.6 percent, increase payrolls by 2.6 percent, expand investment by 3 percent, create 1.5 million small business jobs, and cut the jobless rate by 0.9%.
- How does the small business community view the estate tax?
Unfavorably. Ninety trade and industry organizations have formed the Family Business Estate Tax Coalition, whose sole purpose is to secure sustainable relief and ultimate repeal of the estate tax.