Bills to permanently repeal the federal estate tax and the GST (“generation-skipping transfer”) tax were introduced into both houses of Congress.
What is the Current Law
Currently, federal law states that exemptions from federal estate taxes, GST taxes, and lifetime gift taxes must be indexed to account for inflation each year. As of 2015, the exemption for each tax was $5,430,000. Also, the top tax rate for each of these taxes has been consistently 40% since 2013 and will continue at this rate unless the law is changed.
Death Tax Repeal of 2015
On February 26, 2015, a bill to “amend the Internal Revenue Code of 1986 to repeal the estate and generation-skipping transfer taxes, and for other purposes” was introduced by a Republican representative from Texas, Kevin Brady. This bill would be known as the “Death Tax Repeal Act of 2015” (H.R. 1105).
The bill had 135 Co-Sponsors of which 134 were Republican and one was a Democrat. The Bill included the following provisions:
- Retained federal gift tax with top rate of 35%
- Retained current law regarding lifetime gift tax exemptions
- Provided that transfers in trust would be treated as taxable gifts, unless the trust was treated as a grantor trust
- Repealed the federal estate tax and the GST tax for estates of decedents dying, and repeals tax on generation-skipping transfers made after the date of enactment
- Included special rules for assets held in a qualified domestic trust before the enactment date
- Retained the gift tax annual exclusions (this was $10,000 as adjusted according to inflation at a minimum increment of $1,000; the exclusion was $14,000 for 2015)
- Retained the carryover basis rules for lifetime gifts and also for stepped-up basis for property transferred after death
An identical bill was introduced in the Senate (S.860) about a month later by South Dakota Republican Senator, John Thune. All 26 co-sponsors were Republicans. The same day, the House Ways and Means Committee (this is the chief tax-writing committee of the House) voted to report the bill favorably by a roll call vote split along party lines of 22 yeas (Republicans) and 10 nays (Democrats).
President Obama vowed to veto the bill if it ever made it to his desk. We will keep you updated on this and any other major changes to tax law that could impact you.