Fact Check: "Estate taxes allow wealth to be passed on tax-free up to a certain amount."
What We Know
Estate taxes are levied on the transfer of wealth upon an individual's death, and they apply to the total value of the deceased's estate, which includes cash, property, and other assets. The Internal Revenue Service (IRS) has established a basic exclusion amount that determines how much of an estate can be passed on tax-free. For the year 2025, this exclusion amount is set to be $13,990,000, an increase from $13,610,000 in 2024 (IRS).
In addition to the estate tax, there is also a gift tax that applies to large gifts made during a person's lifetime. The IRS has clarified that individuals can make large gifts without incurring tax liabilities, as long as they stay within the exclusion limits. The increased gift tax exclusion amount, which is in effect from 2018 to 2025, allows individuals to gift up to $11.18 million in 2018, with adjustments for inflation, without incurring gift taxes (IRS).
Analysis
The claim that "estate taxes allow wealth to be passed on tax-free up to a certain amount" is partially true. The basic exclusion amount does indeed allow a significant portion of an estate to be transferred without incurring taxes. However, this exclusion is not permanent; it is set to revert to a lower threshold of approximately $5 million (adjusted for inflation) after 2025 due to provisions in the Tax Cuts and Jobs Act of 2017 (Kiplinger).
The IRS's clarification regarding the gift tax indicates that individuals can make substantial gifts without immediate tax implications, but these gifts will still count against the estate tax exclusion upon the individual's death (IRS). This means that while wealth can be passed on tax-free up to the exclusion limit, any amount above this limit is subject to estate tax, which can be as high as 40% for estates exceeding the exclusion amount (IRS).
The reliability of the sources used in this analysis is high, as they are official IRS publications and reputable financial advisory articles. However, it is important to note that interpretations of tax law can vary, and individuals should consult tax professionals for personalized advice.
Conclusion
The claim is Partially True. While estate taxes do allow for a significant amount of wealth to be passed on tax-free, this applies only up to the established exclusion amount, which is subject to change. The current exclusion is substantial, but it is set to decrease in the near future, which could impact how much wealth can be transferred tax-free.
