Oxburgh Row Financial Blog

Tucked into President Obama’s budget for fiscal year 2016 are some significant proposals that could once again make the federal estate tax one of the top concerns among high-income Americans. The proposals are designed to generate as much as $214 billion in revenue for the federal government over a 10-year period and could have a big impact on high-income families.

Reducing the estate tax exemption to $3.5 million per person is the biggest of these proposals. It’s one that’s significantly lower than the ‘permanent’ exemption of $5 million — adjusted annually for inflation — that’s in place now. Adjusted for inflation again late last year, the current estate tax exemption for 2015 is $5.43 million, up from $5.34 million last year. That’s an exemption of nearly $11 million for a couple. Those higher limits are especially important, given the fact that the top estate tax rate on amounts above the exemption is a whopping 40%. (Obama’s budget proposes increasing that rate to 45%.)

With the exemption where it’s at now, many families have no estate tax liability. It’s estimated that only about 0.12%, or 3,700 estates nationwide, are expected to owe federal estate tax this year. That’s why estate tax concerns have slipped so far down the list of what’s worrisome to wealthy Americans.

The president’s budget could push the estate tax issue back to the forefront of estate planning concerns. Obama’s budget, of course, isn’t set in stone. The budget that’s ultimately approved by Congress may be quite different from the president’s. But it does open the door for more discussion about how ‘the rich’ should pay more taxes. And that’s why we should all stay tuned.