Estate and Gift Taxes

Jay Soled, Rutgers School of Business Professor and Rutgers Masters in Taxation Program Director joins the Yahoo Finance Live panel to discuss estate taxes and the impact of the Tax Cuts and Jobs Act of 2017 to estate taxes.

Video transcript

ZACK GUZMAN: Welcome back. In this week's Tax Time, a reminder of a famous quote from Benjamin Franklin. Of course, he pointed out, there are only two certainties in life. That would be death and taxes. And in this week's Tax Time, we are talking both, ladies and gents, we're talking inheritances and estate taxes. I want to bring on an expert to walk through the best way to plan around these things. Not always great to think about, but important to think about nonetheless.

And for more on that, let's bring on Rutgers School of Business professor and Rutgers Masters in Taxation program director, Jay Soled joins us right now. And professor, it's interesting because this is something that I don't think people plan for enough, right? Nobody really wants to think about the end of times, but important to really be smart about that. And what has changed, I guess, the most over the last couple of years as we talk about tax changes that people out there should know?

JAY SOLED: Well, one important difference from what it might have been years ago is that right now, the federal estate tax exemption is historically at its highest zenith. It's at $11.7 million. So, in yesteryear, a lot of people had major tax considerations, transfer tax considerations. But between the federal government, which has vastly increased the exemption amount, and most states have repealed their estate tax-- now there's only approximately 12 states that have an estate tax-- taxes have truly taken a secondary role in most people's estate planning.

AKIKO FUJITA: And Jay, you talk about that $11.7 million, but there was a proposal on the table. President Biden has talked about reducing it in a significant way, down to, I believe, more than $3 million. So I mean, when you look at that number, how significantly is that likely to shift, granted, it's going to bring more people into the fold?

JAY SOLED: Well, the actual proposal is by Bernie Sanders. And it's not to reduce it to $3 million, it's $3.5 million. And that may happen. If it does, it will increase the number of people, potentially, with the state tax exposure. But keep in mind that between spouses, the exemption amount is portable. So that does allow married couples up to $7 million that they can transfer tax free. That's likely to mean that still, 99% of all taxpayers in the United States will have no estate tax exposure, even if the Bernie Sanders proposal were passed.

ZACK GUZMAN: What's interesting is, you know, every time we talk about taxes, the topic is brought up that rich people always find a workaround when it comes to skirting taxes. And it's tough to find a workaround after you're dead. But before you're dead, I guess, we keep hearing about gifts and the way that some people are working around those. So what is maybe the loophole to watch for there?

JAY SOLED: Well, what you can anticipate, if the estate tax exemption were to be lowered, we are going to see a vast amount of wealth transferred by year's end before the new legislation may take effect January 1, 2022. So you can anticipate a lot of people trying to make multimillion dollar gifts to get past the finish line so they can give $23.4 million before the exemption is reduced. So that would be one easy go-around that I would anticipate taxpayers seeking to avail themselves of.

ZACK GUZMAN: That's also kind of surprising that we haven't seen this targeted earlier, right? I mean, you think about just the general conversations we're having right now about tax the rich. Why do you think that it's taken so long for maybe-- I know it's still from Bernie Sanders here, a more progressive Democrat. But why do you think it's taken so long to maybe target this type of wealth, given that it happens after someone's gone?

JAY SOLED: Well, there's two reasons. First of all, I think the Biden administration is focusing, first and foremost, on corporate tax reform. And they don't want to bite off more than they can chew in this legislation or legislative proposal. So they're taking one step at a time. And keep in mind that for the last two or three decades, the Republicans have called this the death tax. And that moniker has dissuaded many politicians from embracing it because it sounds kind of Machiavellian. So, there is this spin to it that leaves a lot of politicians with a distaste. So its popularity in the last 20, 30 years has waned, even though it affects so few people in the country.

ZACK GUZMAN: All right, well, I appreciate you bringing us the latest on that front because a lot of people, as I said, don't talk about it. Always important to highlight on Tax Time. Professor Jay Soled, Rutgers School of Business professor, thanks again for taking the time today. Be well.