Many people in Minnesota may have heard of the estate tax but may not have a very good understanding of it. In essence, the estate tax is the tax the federal government levies on your assets when they are transferred to your heirs upon your death. However, for the most part, it only affects the wealthy, as it only applies to the part of a person’s estate that amounts to more than $5.49 million. Nevertheless, the federal estate tax is a significant component of our nation’s revenue. Therefore, it is important to understand how it works.
First of all, residents of Saint Paul may be surprised to hear that nationwide in 2017, only 0.2 percent of people in the United States will owe estate tax after their death. This is due, in part, to the fact that the exemption amount has risen significantly over the years. In 2001, it sat at $650,000. By 2017, that number had jumped to $5.49 million.
Also, of the estates that are subject to the estate tax, the amount of tax paid comprises only about one-sixth of the value of the estate. The Tax Policy Center reports that the tax rate in 2017 is, on average, 17 percent. Moreover, there are deductions a person can take advantage of to lower the amount of tax paid. In fact, there are loopholes in the system that allow some estates to avoid the estate tax altogether.
The estate tax is important, as it serves as a significant means of revenue for our nation. To be fair, with regard to the federal revenue over the next 10 years, the estate tax comprises under one percent of that amount. However, this amounts to more than what is spent on three federal agencies combined. If it were repealed, it would cost our nation $269 billion over a 10 year timespan.
In the end, while many people in Minnesota may not be affected by the estate tax, it is still good to have a basic understanding of it, as it is an important part of our nation’s revenue. That being said, nothing in this post can be construed as legal advice. Those who have questions about the estate tax are encouraged to bring the matter up with their attorney, who can provide assistance.
Source: Center on Budget and Policy Priorities, “Ten Facts You Should Know About the Federal Estate Tax,” Chye-Ching Huang and Chloe Cho, May 5, 2017