History of Estate Planning

In early cultures, property was considered owned by a tribe or family.  At the death of the leader, the property was distributed according to customs or laws of that particular society.  In the United States, we have a similar system where if a person dies without a will, his property is divided according a state’s intestacy laws.

The right to dispose property according to your own wishes is founded on the principles of freedom, liberty, and right to individual ownership.  While these concepts are familiar to us now, it was a slow evolution.

Under the Justinian Code in ancient Rome, written and oral wills were recognized but they had to be approved by a public official. In Anglo-Saxon England, land transfers were viewed as transfers of power and must be approved by royalty.  In the 12th century, primogeniture was practiced where property automatically passed to the eldest son.  Then in 1540, the Statute of Wills was enacted allowing landowners to dispose their land as they wished.

Women have not fared well over the course of estate planning history.  Customarily, they were usually disinherited or a formula was used to distribute assets amongst all male heirs.  In some cases, assets would pass to a trust, but would cease to exist if the woman married into another family.  Nowadays, women and men have equal treatment to inherit property.

The laws of individual states control inheritance of property in the United States. Most of these laws are based on British common law statutorily providing for the spouse and children.  In a minority of states (9), community property laws are followed whereby marital property is considered shared equally.

As part of the new federal tax plan, Congress has once again said “no” to the federal estate tax. In 2010, it will be repealed. This change is the latest chapter in the federal government’s long history of enacting and repealing estate taxes. There are big changes on the fiscal horizon, but they’ve happened before.

  • 1797- First Federal Estate Tax enacted to help fund naval build up during tensions with France.
  • 1802- Federal Estate Tax is repealed.
  • 1862-Federal Estate Tax reenacted to help pay for Civil War at 15%.
  • 1870- Federal Estate Tax repealed.
  • 1898- Federal Estate Tax reenacted to pay for Spanish-American War.
  • 1902- Federal Estate Tax repealed.
  • 1916- Federal Estate Tax reenacted at 10%.
  • 1941- Federal Estate Tax maximum tax rate increased to 77% to help fund World War II.
  • 1976- Carryover basis rule enacted.
  • 1980- Carryover basis rule repealed.
  • 1981- Increased Marital Deduction and Unified Credit.
  • 1993- Federal Estate Tax maximum rate increased to 55%.
  • 1997- Phase-in of the $1 Million Exemption for farmers and business owners.
  • Between 1981-1999- 126 New estate tax laws enacted, an average of 7 per year.
  • 2001- Phase out of Federal Estate Tax and Generation Skipping Tax, with modified Carryover basis rules, effective in 2010.

The history of estate taxes in America has been a long and winding road. Careful estate planning is still one of the most important ways to manage and protect your assets for your heirs.

Under budget rules, the estate tax is repealed for one year — 2010. Unless Congress acts in the upcoming years, the estate tax will be reinstated with pre-2002 rates. Standby…