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Wars and legacies: A brief history of estate taxes

A brief history of estate taxes reads like this: The ancient Egyptians levied duties on property transferred at death. So did the Romans 2,000 years ago, and so did feudal Europe. In our country, similar fees came due intermittently almost from the beginning, and the estate tax in its present form is 99 years old. But a closer look at the history of estate duties in the United States reveals an interesting detail: Until 1916, these fees came and went with national crises or wars.

Congress first introduced a de facto estate fee in 1797. Termed the stamp tax, it helped offset the cost of the country’s undeclared naval war with France that had begun in 1794. Federal stamps were required on wills offered for probate, on inventories and letters of administration, on receipts and discharges from legacies, and on intestate distributions of property. The tax was progressive. Twenty-five cents came due for bequests between $50 and $100. Twice the amount, 50 cents, was charged for bequests between $100 and $500. Another $1 needed to be paid for every additional $500. Congress repealed the Stamp Act five years after its inception, once the crisis with France was over.

Six decades later, Congress imposed similar duties to help finance the Civil War. In addition to a stamp tax on the probate of wills and letters of administration, the Tax Act of 1862 introduced a federal inheritance tax with rates varying based on how closely the beneficiary was related to the deceased person. Estates valued at less than $1,000 were exempted, as were inheritances by a surviving spouse. The stamp tax started at 50 cents for bequests under $2,500. It rose to $20 for bequests between $100,000 and $150,000, and another $10 came due for each additional $50,000 in estate value. With the debts from the war paid off, Congress repealed the inheritance and the stamp tax in 1870 and 1872, respectively.

In 1898, against the backdrop of the Spanish-American War, Congress once again passed a law to levy duties on transfers of property after death. A precursor for our modern-day federal estate tax, the federal legacy tax imposed rates between 0.75 percent and 15 percent, depending on the size of the estate and the relationship between the deceased person and the inheritor. Estates with a value under $10,000 were exempt from the tax as were inheritances by surviving spouses.

The legacy tax was repealed in 1902, but only 14 years later, half-way into World War I, Congress once again introduced an estate tax by passing the Revenue Act of 1916. This time, the tax was here to stay.

by Kevin J. Moore