Americans Set to Inherit $764 Billion This Year, Largely Tax Free
This year alone, Americans are estimated to inherit over $750 billion while only paying an estimated 2.1% in taxes, according to the Brookings Institution. In comparison, the estimated taxes on work income and savings is 15.8%. While plenty of people advocate for higher taxes on the wealthier population, Lily Batchelder, who advised Barack Obama during his presidency, is proposing an inheritance tax that could raise approximately $1.4 trillion over the next ten years in taxes.
Currently, wealthy Americans and their estates are required to pay a 40% tax on bequests and gifts to their heirs. However, there are many ways to avoid the tax. For example, the first $23.2 million in inheritance is tax-exempt for married couples, and there are many other methods to transfer wealth to heirs tax-free using trusts and other strategies.
Batchelder’s plan would eliminate the current estate tax system and require heirs to pay income and payroll tax on inherited money. Also included in her plan is a proposed lifetime threshold that would make certain heirs exempt, taxing only the richest heirs. The estimate is still not representative of the actual number raised by the new “inheritance tax” due to the fact that it does not include additional funds raised through the closing of certain tax loopholes also enacted by the new plan.
Batchelder wrote that the proposal would “soften inequalities, strengthen mobility, and more equitably allocate taxes on inheritances among heirs,” while also cutting any distortions in the labor market and increasing work among heirs.
Though your options are virtually limitless when it comes to estate planning, deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.