But relatively few families subject to the tax pay that much; typically their hit is about 16.6 percent, according to some estimates.
“Really, anyone who is not on death’s doorstop with a good [estate] planner can get the rate down to zero. Sixteen percent is a high effective rate,” said Robert Lord, a tax attorney based in Arizona.
Now the Treasury Department has proposed new regulations it says will make it harder for families to avoid estate taxes.
“It is common for wealthy taxpayers and their advisors to use certain aggressive tax planning tactics to artificially lower the taxable value of their transferred assets,” Mark J. Mazur, assistant secretary for tax policy, said in a blog post.
“Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes.”
For instance, some families put their assets in a limited liability corporation when looking for ways to lower their taxes, said tax attorney Beth Kaufman, who previously served as associate tax legislative counsel for the Treasury Department. The family can then argue that the assets should be valued at a discount because selling a portion of the corporation would be difficult, she said. Applying that discount to the value of the assets obtained through an inheritance or given to a family member as a gift, would lower the estate tax owed.
The tax community has been waiting for regulations on this issue since 1990, she said. “In this world, this is a big deal,” said Kaufman, president of D.C. law firm Caplin & Drysdale.
The Treasury Department did not say how many families the change is expected to affect or how much additional tax revenue it expects to gain. But the estate tax is currently paid by few people, 2 out of every 1,000 estates, according to the Center for Budget and Policy Priorities. And it is projected to bring in $249 billion between 2017 and 2026, according to the Congressional Budget Office, a small part of the federal budget.
Lord, the tax attorney, said estate planners will still be able to find ways around the new regulations. State lawmakers, for example, could pass laws that would help wealthy families avoid the new restrictions.
The estate tax has been hotly debated for years, with Republicans arguing that it unfairly penalizes small-business owners and farmers whose enterprises are part of their personal holdings and Democrats saying it is necessary to ensure that the wealthy pay their fair share.
Republican presidential nominee Donald Trump has proposed eliminating the tax all together, while Democratic candidate Hillary Clinton has said the estate tax should be increased. Clinton has said she would lower the threshold for the tax to apply to estates valued at $3.5 million or more from the current threshold of $5.45 million. She also would raise the top rate wealthy families would owe to 45 percent, from 40 percent.
Correction: An earlier version of this post gave incorrect amounts for the estate-tax threshold proposed by Clinton and the current threshold. The actual totals are in millions, not billions, of dollars.