You do not have a “death tax” problem

This work is licensed under CC BY-NC-ND 4.0

Trust me. As a probate and tax lawyer, I can tell you, for sure, that you do not have a “death tax” problem.

First of all, there is not anything in federal or Iowa law that is a called the “death tax.” Second, this is what is popularly described as a “hoax.” There is sometimes (and, by that, I mean very rarely) a property tax on the transfer of property from a deceased person. The hoax here is that the federal estate tax has been so limited by exemptions that it touches virtually no one.

IRS regularly publishes solid information, including what tax returns are filed and what taxes are collected. It is, based on IRS numbers, a rock-solid fact that:

0.19 percent of adults dying owe federal estate tax; and 99.81 percent of adults dying do not pay any federal estate tax.

The number of decedents who owe and who do not owe federal estate tax have been exceptionally consistent from 2011 to 2016.

The reason for this is that everybody has an exemption of $11,580,000 in 2020. That number has been indexed and increasing every year. If you are married, you get to combine that with your spouse for a $23,160,000 exemption.

What does that translate to in Iowa? In 2016, there were a grand total of 44 Iowans who owed federal estate tax. In 2017 there were a grand total of 40 Iowans who owed tax. In 2018, there were a grand total of 54 Iowans who owed tax. Out of the 3.1 million Iowans, about 50 owe federal estate tax. That’s 0.0016 percent of the population.

There has been a particular advertisement on television (recently, again) featuring a farmer complaining about the evil death tax and how it is responsible for breaking up farms and small businesses. Regardless of your political stripe, the federal estate tax affects almost no one and is not a problem for the vast, vast, vast majority of Iowans. As Professor Neil Hamilton points out, the law also has numerous mechanisms for small businesses to avoid having to break up a farm or business. So is this ad directed at the 50 Iowans to whom it might matter? Doubt it. It is all beyond ridiculous. It is objectively false and misleading and seriously causes confusion for estate planning.

The odds are that, if you are reading this, you have less than the $11,580,000 or the $23,000,000 necessary in 2020 to owe federal estate tax. God bless if you do—congratulations on your good fortune. The rest of us, however, can reasonably expect that the number of you who have that kind of wealth and who actually pay any taxes (you 0.19 percent) will continue to shrink because of indexing.

So, again—and I can hardly stress this enough—you do not have a death tax problem.