Almost 15 million U.S. households (12.5%) could have a potential tax liability if Congress fails to act and the estate tax law reverts back to a $1 million exemption and 55% maximum tax.
According to LIMRA’s analysis of the Federal Reserve Board’s Survey of Consumer Finances, only 4.4% of households have financial assets greater than $1 million. But if the value of homes and other properties, privately-held business interests, and the face amount of life insurance are included in the value of the estate, far more families could be affected, the life insurance association said in a release.
LIMRA expects Congress to consider three proposals regarding the estate tax are:
- Let the estate tax law to revert back to a $1 million exemption and 55% maximum tax.
- Extend the current law with a $5 million exemption and 35% maximum tax.
- Enact a compromise of a $3.5 million exemption and 45% percent maximum tax.
If Congress fails to act, 14.7 million U.S. households would have a potential estate tax liability, with an average estate tax of $1.4 million, LIMRA said. About 55% of these households do not have enough life insurance coverage on the deceased to pay the tax, and would still owe an average of $1.6 million.
If Congress extends the existing law, 2.4 million households (slightly higher than 2%) would potentially owe estate tax. At a 35% tax rate, their average tax would be $2.4 million. LIMRA’s analysis shows that 43% of these households do not have enough life insurance coverage to pay the tax and would still owe, on average, $3.1 million.
If Congress agrees to the compromise of $3.5 million exemption and 45% tax rate, 3.6 million households (slightly higher than 3%) might owe estate tax. The average tax owed for these families would be $2.6 million. According to LIMRA’s analysis, 53% of these households do not have enough coverage to pay the tax. On average, LIMRA calculates that these households would still owe $1.6 million. On average these households would still owe $3 million.