When I started practicing law 30 years ago, the Federal Estate Tax Exemption was $600,000, with a maximum tax rate of 55 percent. That meant that a deceased person could pay a maximum 55 percent Federal Estate Tax on the value of his estate in excess of the exemption amount.

Today, the exemption has ballooned to $13.99 million with a maximum tax rate of 40 percent. With such a large exemption, the Federal Estate Tax affects very few individuals. The current administration in Washington has proposed to end the Federal Estate Tax.

The Federal Estate Tax is a tax on the estates of the deceased. It is part of the Federal unified gift and estate tax system. The Federal Gift Tax applies to transfers of property during a person’s life. In addition to the federal government, 12 states (including Pennsylvania) have their own inheritance tax levied on the estates of the deceased. These state taxes often have exemptions based on the amount of the estate or the relationship between the beneficiaries and the decedent.

Many techniques have been developed over the years to avoid the impact of the Federal Estate Tax. They include estate planning tools such as marital trusts to maximize the use of the Federal Estate Tax Exemption when the first spouse dies. Wealthier individuals will often use estate planning to remove valuable assets from their estate before their deaths or decide to leave their estate to charitable institutions.

Under the current law, the Federal Estate Tax Exemption is scheduled to be cut in half at the end of 2025, unless congress and the president agree to extend or revise the law.

The Death Tax Repeal Act has recently been introduced in congress to permanently repeal the Federal Estate Tax and the Generation Skipping Tax. It would continue the lifetime exemption limit for gifts at $10 million ($13.99 million in 2025, adjusted for inflation) as well as reducing the Federal Gift Tax rate from 40 percent to 35 percent. The act would maintain the current “basis adjustment” that occurs at death. The adjustment works like this: if an individual dies owning appreciated assets, those assets would receive a full “step-up” in basis to the date of death fair market value.

This is not the first time that a proposed repeal of the Federal Estate Tax has been introduced by congress. However, in light of the current political climate in Washington and the limited number of individuals currently affected by the tax, there is a very good chance that the Federal Estate Tax will be repealed. Watch for the repeal of the tax to be part of the federal budget this year.

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Matthew J. Parker, Esq. is an attorney at the law firm of Marshall, Parker & Weber, LLC with offices in Williamsport, Jersey Shore and Plains. For more information visit www.paelderlaw.com or call 1-800-401-4552.