On Thursday, April 16, the House of Representatives passed H.R. 1105 or the Death Tax Repeal Act of 2015 by an extremely partisan margin of 240 to 179. The version of the Bill passed by the House of Representatives would repeal the estate and generation-skipping transfer taxes. If enacted into law, the Bill would leave the gift tax in place with certain modifications.
Generally, under current law, transfers at death to non-spouse and non-charitable beneficiaries in excess of $5,430,000 less taxable lifetime gifts are taxed at a rate of 40%. For example, assume that Decedent, who made no gifts during life, dies with assets of $10,000,000, leaving the entire estate to Child. Under current law, Decedent’s estate would owe approximately $1,828,000 of estate tax (excluding certain deductions such as administration and funeral expenses). Similarly, if an unmarried Donor gave child $10,000,000 during 2015, assuming no prior taxable gifts, Donor would owe $1,822,400 of gift tax (the first $14,000 of the gift is shielded by the annual exclusion).
The Death Tax Repeal Act of 2015 would eliminate the estate tax altogether so that assets transferred at death would not be subject to tax. Additionally, the Bill would lower the rate of tax on taxable gifts from 40% to 35%. The basic exclusion amount remains at $5,000,000, indexed for inflation, and the annual exclusion remains at $14,000. The Bill will not change the current law regarding a “step-up” in basis at death for assets in a decedent’s estate. An interesting provision in the proposed law is that lifetime transfers to trusts that are taxed as “grantor” trusts are not considered taxable gifts.
Although the House of Representatives has voted to pass the H.R. 1105, the Bill will not become law until the Senate also passes it and President Obama signs it into law. The White House responded quickly to the news that the House passed H.R. 1105 and stated that the President would veto Death Tax Repeal Act of 2015. The Senate is also considering its own version of the Death Tax Repeal Act of 2015, which is currently before the Senate Finance Committee.