A Brief History of Estate Taxes

Since the inception of the United States, federal estate taxes have played a crucial role in providing funding for the federal government. The earliest form of such taxation can be traced back to 1797 when Congress introduced a system of federal stamps. These stamps were required on all wills presented for probate whenever property, including land and homes, was transferred between generations. The revenue generated from these stamps was utilized to bolster the Navy during an undeclared war with France, which commenced in 1794. With the conclusion of the crisis in 1802, the tax was subsequently repealed.¹

Estate taxes resurfaced during the lead-up to the Civil War. In 1862, the Revenue Act was passed, encompassing an inheritance tax that encompassed transfers of personal assets. Four years later, Congress made amendments to the Revenue Act, introducing a tax on real estate transfers and raising the rates for inheritance taxes. As with the previous instance, once the war concluded, the Act was repealed.¹

In 1898, a federal legacy tax was proposed as a means to generate revenue for the Spanish-American War. This tax system, which featured graduated tax rates based on the size of the estate, served as a precursor to the contemporary estate taxes. However, the legacy tax was repealed in the same year that the war ended, 1902.¹

Nonetheless, in 1913, the ratification of the 16th Amendment to the Constitution granted Congress the authority to impose taxes on incomes from any source. This amendment laid the foundation for the Revenue Act of 1916, which established an estate tax that has, in various forms, been an integral part of American history ever since.¹

In 2010, there was a temporary expiration of the estate tax. However, in December of that year, Congress enacted the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This legislation retroactively imposed tax provisions on all estates settled in 2010.²

In 2012, the American Tax Relief Act made the estate tax a permanent fixture in the tax code.³

Further adjustments to the estate tax rules were made as part of the 2017 Tax Cuts and Jobs Act. The estate tax exemption was increased to $11.2 million, doubling the previous amount of $5.6 million. Married couples were now able to transfer up to $22.4 million to their heirs without incurring estate taxes. As of 2023, the exemption rate has risen to $12.92 million per individual (and $25.84 million for married couples). It's important to note that the provisions of the Act are set to expire in 2025. If you have concerns or uncertainties about your estate planning strategy, it may be a prudent time to review and reassess your current approach.^4,5