In a post earlier this year, we discussed that Americans can now transfer more than $5 million dollars in assets through the estate tax system without incurring a tax, while at the same time permitting their beneficiaries to receive those assets with a new and usually higher “stepped-up” basis.
Addressing the concept gave rise to the question: Given inflation over the years, is the estate tax exemption really higher than it has been historically? In order to answer that, we created a table showing the estate tax exemption over time, comparing it to the current buying power of the exemption amount in 2015 dollars.
While the comparisons are not perfect because the tax laws have changed over the years, the chart illustrates that the current exemptions are, indeed, historically high.
Throughout most of the twentieth century, the buying power of the exemption amount hovered at around $500,000 measured in 2015 dollars. The exemption’s 2015 equivalent started creeping up in 1990, but did not reach the $5,000,000 range until 2011. (The basic outline of the gift and estate tax laws has been consistent since the early 1980s.)
As noted in the earlier post, the exemption amount has been historically-high for several years. There are no signs that it will be reduced in the near future. It is clearly time to consider free basis when making estate planning decisions.
Tax Year Estate Tax Exemption 2015 Equivalent
1920 $50,000 $585,805
1930 $100,000 $1,406,000
1940 $40,000 $562,000
1950 $60,000 $584,000
1960 $60,000 $476,000
1970 $60,000 $363,000
1980 $161,000 $459,000
1990 $600,000 $1,078,000
2000 $675,000 $920,000
2001 $675,000 $895,000
2002 $1,000,000 $1,305,000
2003 $1,000,000 $1,276,000
2004 $1,500,000 $1,864,000
2005 $1,500,000 $1,803,000
2006 $2,000,000 $2,329,000
2007 $2,000,000 $2,264,000
2008 $2,000,000 $2,180,000
2009 $3,500,000 $3,829,000
2010 Unlimited
2011 $5,000,000 $5,217,000
2012 $5,120,000 $5,234,000
2013 $5,250,000 $5,290,000
2014 $5,340,000 $5,295,000
2015 $5,430,000 $5,430,000