January 10, 2023
In October, the IRS released data from the federal estate tax returns filed in 2021. Most of those filings were for deaths in 2020, when the amount excluded from federal estate tax was $11.58 million. According to the CDC, some 3.4 million Americans died that year, and the IRS reports that 6,158 of the resulting estates filed an estate tax return. Put another way, only one estate in 557 filed an estate tax return, 1.8% of all estates.
Of those 6,158 estate tax returns, a majority, - 3,574 estates worth a total of just over $91 billion - were nontaxable, including 237 estates worth $50 million or more. A combination of the unlimited marital deduction, unlimited charitable deduction, and the federal estate tax credit (plus smaller deductions for administration expenses and state death taxes) was responsible for bringing the tax liability down to zero.
Some 43% of the taxable estates were worth between $10 million and $20 million. Only 14% were worth more than $50 million, but they provided over 60% of the net federal estate tax revenue.
About 1,000 estate tax returns were filed by estates below the tax filing threshold ($11.58 million for 2020 deaths). Such filings were likely made in order to claim the Deceased Spousal Unused Exclusion (DSUE). Here's an example of how that works. Husband dies with an estate of $20 million, leaving it all to Wife. With the unlimited marital deduction, there would be no federal estate tax, so Husband's estate would have used none of his exclusion. Wife inherits the unused exclusion, which will be applied in her estate after her death, as well as her own exclusion. In that way, the couple gets the advantage of two estate tax exclusions instead of just one. But to get that benefit, an estate tax return must be filed, and an election made.
Over $2.7 billion of DSUEs were claimed on 2021 estate tax returns, with 75% found on the nontaxable returns.
Because women live longer than men, one would expect that the estates of women would pay more estate taxes than the estates of men, because those estates can rely on the marital deduction to eliminate the tax. The IRS statistics bear this out. The aggregate value of men's estates was $117 billion, which generated $8.9 billion in estate taxes. Women's estates were worth $64 billion, and they paid $9.4 billion in estate taxes.
The IRS also categorized the occupations of the 2021 decedents wealthy enough to file an estate tax return. The top ten categories are listed in the table below. Note that "Retired" means that no specific occupation was listed, most of the decedents were in fact retired.
Total estate tax collections, according to the report, came to $18.4 billion in 2021, an amount that is scarcely a rounding error in the multi-trillion dollar federal budget. But to the families required to come up with that tax payment, it was a very big deal indeed. That's why estate planning remains very important.
The amount exempt from federal estate tax is $12.92 million in 2023, which may seem like plenty of tax shelter. However, the exemption amount falls in half in 2026, and so estate taxes then will come due from many more estates.