	Introduction

The estate and gift tax is imposed on bequests at death and on inter-vivos (during lifetime) gifts. The rate of the tax and the level of exemption have been under discussion for some time, with temporary provisions in place for a number of years. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) established permanent rules for the estate and gift tax for 2013 going forward. Although details of the tax structure are addressed in the following section, the principal rules are as follows: 
In 2011, estates and lifetime gifts had a combined exemption of $5 million in asset value, indexed for inflation. Transfers to spouses remain exempt, but spouses can inherit any unused portion of the exemption from each other, so that the combined exemption for a couple was $10 million in 2011. A number of special rules for farms and small businesses are retained. A doubling of the exemption level was adopted in the 2017 tax revision ( P.L. Other Exemptions and Deductions

Transfers between spouses are exempt. Estates are allowed to take deductions for charitable contributions and administrative expenses; a deduction for taxes paid on estates and inheritances imposed by states; and to exempt up to $5.49 million for 2017 ($11.2 million in 2018) in remaining assets from the tax. Differences in the Treatment of Bequests and Gifts

Aside from the different exemption levels in some estate tax rules, there are other differences between the taxation of gifts and bequests. In addition, the gift tax is tax exclusive (i.e., the tax is imposed on the gift net of the tax), whereas the estate tax is tax inclusive (i.e., the tax is applied to the estate inclusive of the tax). Brief History of Recent Developments

The Economic Growth and Tax Relief Act of 2001 (EGTRRA; P.L. 107-16 ) provided for a gradual reduction in the estate tax. Under EGTRRA, the estate tax exemption rose from $675,000 in 2001 to $3.5 million in 2009, and the top tax rate fell from 55% to 45%. President Obama proposed a permanent extension of the 2009 rules (a $3.5 million exemption and a 45% tax rate), and the House provided for that permanent extension on December 3, 2009 ( H.R. The Senate Democratic leadership indicated a plan to retroactively reinstate the 2009 rules for 2010 and beyond. A similar proposal for a $5 million exemption and a 35% rate, which also included the ability of the surviving spouse to inherit any unused exemption of the decedent, is often referred to as Lincoln-Kyl (named after the two Senators who supported it). These provisions provided for estate tax rules through 2012, and absent legislation, the provisions would have reverted to the pre-EGTRRA rules ($1 million exemption, 55% top rate). 115-97 ) doubled the exemptions for the years 2018 through 2025. This change reduced total projected revenue from the estate tax by about two-thirds. Only a small portion of high-income decedents are affected by the tax under a $5 million exemption. The estate tax would have affected less than 0.2% of decedents over the next decade under the permanent rules. About 0.2% of estates with half or more of their assets in businesses will be subject to the estate tax under the permanent rules, and less with the higher exemption levels. If the number of farm estates fall in proportion to the number of estates in general, around 25 farm estates (one estate every two years per state) would be taxable with the higher exemption level enacted in 2017. Making the Higher Exemption Levels Permanent

The 2017 increase in exemption level was estimated to lose $83 billion in revenue. 1 would have first increased the exemption levels and repealed the estate tax after 2023. Proposal to Return to 2009 Rates and Exemptions

The Obama Administration's FY2016 budget proposals to restore the 2009 higher rates and lower exemptions were estimated to raise $189 billion over 10 years. Most of those laws have been eliminated.
The American Taxpayer Relief Act (ATRA; P.L. 112-240) established permanent rules for the estate and gift tax for 2013 going forward. The tax revision of 2017 (P.L. 115-97) doubled the exemption levels. This increase expires after 2025.
The estate tax is imposed on bequests at death as well as inter-vivos (during life) gifts. A certain amount of each estate, $5 million in 2011, indexed for inflation, is exempted from taxation by the federal government. With indexation, the value was $5.49 million in 2017 and with the temporary doubling of the exemption and inflation adjustments, is $11.2 million in 2018. The taxable estate is taxed at 40%. The exemption applies to total bequests and gifts (separate from the annual inter-vivos gift exemption of $15,000 per donee for 2018). Transfers between spouses are exempted, and any unused exemption can be inherited by a surviving spouse. Other elements of the tax remain, including deductions for charitable bequests and a number of special provisions for farms and small businesses.
The permanent tax treatment of estates and gifts had been uncertain for some time. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16), among other tax cuts, provided for a gradual reduction and elimination of the estate tax. Under EGTRRA, the estate tax exemption rose from $675,000 in 2001 to $3.5 million in 2009, and the rate fell from 55% to 45%. In 2010, the estate tax was eliminated. There was general agreement that some sort of estate tax would be retained. A proposal to make the 2009 rules ($3.5 million exemption and 45% rate) permanent was included in President Obama's 2010 and 2011 budget outlines and was passed by the House in December 2009. In addition, in 2009, Senate Democratic leaders supported the plan to enact the 2009 rules permanently. The Senate Republican leadership proposed a $5 million exemption and 35% rate. This latter provision was eventually adopted for a two-year period, through 2012. For estates of decedents in 2010, either the 2010 or 2011 rules could have been elected. Spouses can inherit unused exemptions. The permanent provisions retain most of the rules adopted for 2011 and 2012, but with a higher rate.
Compared with the $1 million exemption and 55% rate under pre-EGTRRA law, the 2013 permanent rules were estimated to lose an average of about $37 billion over the next 10 years, a two-thirds reduction in estate tax revenues. The increase in the exemption level costs around $10 billion per year, a further reduction of about 40% of projected revenues.
Regardless of the exemption levels considered, few estates are affected by the tax. The estate tax is a highly progressive tax, with about three-fourths collected from estates in which decedents are in the top 1% of the income distribution. At a $5 million exemption, less than 0.2% of estates will be subject to the tax. Although concerns have been raised about the effects of the tax on small businesses and farmers, estimates indicate that only a small share of these decedents are affected.
Budget proposals during the Obama Administration proposed a return to the 2009 rates and exemptions. They also proposed a variety of structural reforms, including restricting Grantor Retained Annuity Trusts (GRATs), providing consistent valuation for estate tax and basis for capital gains, limiting the duration of generation-skipping trusts, and providing consistent treatment of grantor trusts along with some other minor changes. Prior provisions would have disallowed minority discounts (for estates left to a family partnership) and addressed other aspects of GRATs. During the recent 2017 tax reform deliberations, the House proposed to increase the higher exemption temporarily, and repeal the estate tax after 2024.