Asset Distribution of Taxable Estates: An Analysis

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This report provides data on the distribution of assets in estates as reported on estate tax returns
filed in 2005. This report finds that farm and business assets represent a small share of the total
value of taxable estates that filed tax returns in 2005, (2.3% and 10.8%, respectively). That share
is concentrated in estates valued over $10 million. For an overview of the estate tax, see CRS
Report RL30600, Estate and Gift Taxes: Economic Issues, by Donald J. Marples and Jane G.
Gravelle. This report will be updated as new data become available.

The estate and gift tax debate has centered on the perceived need to relieve heirs of the
responsibility of remitting taxes on the decedent’s transferred assets, particularly in the case of
family farms and businesses. The Economic Growth and Tax Relief Reconciliation Act of 2001
(P.L. 107-16), phases out the estate and gift tax by 2010. Repeal of the estate and gift tax for all
estates would achieve the policy objective of relief for farm and small-business estates. However,
farm assets and business assets represent a relatively small share of total taxable estate value,
approximately 13.1% of gross taxable estate value in 2005. (The provisions phasing out the estate
tax expire after 2010, although repeal may be made permanent.)
The estate and gift tax minimum filing requirement is $2.0 million for deaths occurring in 2007.
Generally, estates valued below the threshold are not required to file a return. Estates valued over
the threshold amount calculate their tax liability based upon the entire (or gross) value of the
estate inclusive of the $2.0 million. Deductions from the gross estate value, such as bequests to a
surviving spouse (the marital deduction), state estate and inheritance taxes, and donations to
charitable organizations, are then subtracted from the gross estate value. The tentative tax liability
is determined by the progressive rate schedule provided for in the tax code.
The next step in the calculation of estate tax liability, and perhaps the most important, is the
applicable credit. The applicable credit is set such that an estate has the equivalent of a $2.0
million exemption (for deaths occurring in 2007, see Table 1 below). In many cases, the marital
deduction combined with the deduction for charitable contributions can eliminate all estate tax
liability.
Table 1. Increases in the Filing Requirement
^{Year of Death}^{Filing Requirement or}^{Equivalent Exemption}^{Applicable Credit}
²⁰⁰^{4 a}^{nd 2}⁰⁰⁵^$1,50^0,00⁰^$55^5,80⁰
²⁰⁰^{6 t}^hroug^{h 2}⁰⁰⁸^$2,00^0,00⁰^$78^0,80⁰
²⁰⁰^{9 $3,50}^0,00^$1,52^5,80
²⁰¹⁰^{estate tax r}^epealed^{estate tax r}^epealed
²⁰¹^{1 a}^{nd after}^$1,00^0,00⁰^$1,00^0,00⁰
Before 2005, estates were allowed to claim a credit for state death taxes paid. The Economic
Growth and Tax Relief Reconciliation Act of 2001, however, gradually repealed the credit for
state death taxes; eliminating it in 2005 and replacing it with a deduction for taxes paid. Many
states have relied on the federal credit for their estate tax and will need to modify their tax laws to
continue collecting their estate and inheritance taxes. According to a recent evaluation of state
laws, as of September 2006, “About half the states—some 24 states—continue to collect either an ¹
estate or inheritance tax.”

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The data utilized in this report are from the Internal Revenue Service (IRS), Statistics of Income ²
(SOI) Division. The SOI data report the assets held by estates by gross estate value classes. For
this report, farm returns are defined as estates reporting farm assets. Business returns are defined
as those estates that include assets typically held by businesses: ‘closely held stock,’ ‘limited
partnerships,’ ‘real estate partnerships,’ and ‘other non-corporate business assets.’ Estates
reporting one or more of the four assets were termed business returns. This methodology is
imperfect and likely double counts many estates. As a result, the number of business estates
would be significantly overstated by this estimate.
Of the approximately 2.4 million deaths in 2004 of people 25 years old and over, 1.3% incurred ³
estate and gift tax liability. Further, only 1,715 decedents with taxable estates included farm
assets (0.07% of all deaths), and 11,011 taxable estates listed assets of the type typically held by
businesses (0.46% of all deaths). The primary reason for the low number of filers relative to the
number of deaths in 2004 is the high gross estate value filing threshold. In tax year 2004, only ⁴
estates valued at greater than $1,500,000 were required to file an estate and gift tax return. This
makes the estate tax a relatively progressive tax source.
Table 2 suggests the progressivity of the estate and gift tax in 2005. Taxable estates worth over
$10 million accounted for 7.2% of the total taxable estates, yet 47.8% of all estate tax revenue.
The 3,600 estates (19.5% of taxable estates) larger than $5 million generated over 63% of total
estate tax revenue. Recall that only 1.3% of deaths generated any estate tax liability.
Table 2. Wealth Distribution of Taxable Returns Filed in 2005
^Gross^{Percent of}^Percent
^{Size of Gross}^Taxable^Taxable^Estate^{Net Estat}^e^Tax^Taxable^{Federal Ne}^t
^Estate^Returns^Value^(thousands⁾^Estate^{Estate Tax}
^(thousands⁾^Returns^Revenue
^{All Returns}^18,4³¹^$10^1,77^1,90⁶^$21,5^20,9⁸⁹^100.^0%^100.^0%
^{1.5 to 2.5 million}^8,66⁸^$16,8^66,7³³^$1,55^0,04⁸^47.0%^16.6%
^{2.5 to 5.0 million}^6,16²^$20,7^63,2⁵⁸^$4,39^3,22⁷^33.4%^20.4%
^{5.0 to 1}^0.0^2,28^{0 $15,5}^90,3¹⁸^$4,47^7,02³^12.4%^15.3%
^mill^ion

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^Gross^{Percent of}^Percent
^{Size of Gross}^Taxable^Taxable^Estate^{Net Estat}^e^Tax^Taxable^{Federal Ne}^t
^Estate^Returns^Value^(thousands⁾^Estate^{Estate Tax}
^(thousands⁾^Returns^Revenue
^{10.0 to}^{20 million}⁸²²^$11,2^51,9⁴³^$3,27^5,97²^4.5%^11.1%
^{over 20.0}^million⁴⁹⁸^$37,2^99,6⁵⁴^$7,82^4,71⁹^2.7%^36.7%
^Source:^Int^{ernal Reve}^{nue Servic}^{e, Statistics of Income,}^{Estate Tax Returns Filed in 2005}^{, IRS}^{, SOI un}^published
^{data, November 2}⁰⁰^6.
The SOI data do not distinguish estate tax returns by detailed occupation of the decedent, such as
farmer or business person. However, the data do provide significant detail on the distribution of
the decedent’s assets. Table 3 summarizes estate tax return asset data from the returns filed in
2005. Generally, assets that represent more of the taxable estate shoulder a greater share of the tax
burden. The value of taxable estates is concentrated in the following asset categories: publicly
held stocks, state and local bonds, non-farm real estate, personal residences, and cash. These five
assets represent 66.4% of total taxable estate value in 2005. Thus, eliminating the estate tax will
reduce the tax burden on these assets.
Table 3 reports that the value of total farm assets (“farm real estate” and “other farm assets”) is
approximately 3.5% of total taxable gross estate value. Note that the IRS does not separately
report farm real estate; CRS estimated an amount for this report. Farm real estate would have
been included in the “Other Real Estate” asset category. Real estate represents about 84% of total
assets held by non-corporate farms according to recent U.S. Department of Agriculture (USDA) ⁵
data. Thus, a new category, “farm real estate,” was created to better represent farm asset
distribution. The primary assumption used to determine the amount of farm real estate is that the
ratio of non-real estate farm assets to farm real estate assets (1 to 5.3) is the same for the farms of
decedents and for the farms in the USDA data. Thus, by this interpolation, approximately $3.0
billion of the assets in the reported “Other Real Estate” IRS category would likely be farmland.
The data reported in Table 3 reflect this adjustment of the IRS reported data.
The business assets in Table 3 represent approximately $11.0 billion of total taxable estate value
(or 10.8%). The largest is closely held stock, worth approximately $5.9 billion. However, total
business assets as reported do not explicitly indicate the portion of those assets held in small
businesses.
Though farm and business decedents may have other taxable assets—such as equities and cash—
the burden on farm and business assets alone is quite small relative to other assets. Thus,
removing the estate and gift tax or lowering the rates in general will have a much greater effect on
non-farm and non-business assets.

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Table 3. Asset Distribution of Taxable Estate Tax Returns Filed in 2005
^{Percent of Total}
^{IRS Defined Asset Category}^{Total Asset Value}^{($ in thousa}^nds)^{Taxable Estate}
^Value
^{Gross Estate Value}^101,⁷⁷^1,9⁰⁶^100.^00%
^{Publicly Held Stock}^34,0^19,0⁰³^33.4^3%
^{State and Local Bonds}^12,3^19,6⁵³^12.1^1%
^{Non-farm Real Estate}^7,58^2,22⁷^7.45%
^{Personal Residence}^7,16^1,59⁴^7.04%
^{Cash 6,47}^1,57⁸^6.36%
^{Closely Held St}^ock^a^5,89^9,24^5.80%
^{Annuities 4,26}^5,33²^4.19%
^{Cash Ma}^nagement^Account^s^4,18^2,38⁴^4.11%
^{Other Federal Bonds}^3,26^6,28⁶^3.21%
^{Limited Partnerships}^a^3,04^5,32⁹^2.99%
^{Farm Real Estate}^b^2,99^2,94^2.94%
^{Mortgage and Notes}^2,11^2,39⁰^2.08%
^{Corporate and Foreign Bonds}^1,40^6,57³^1.38%
^{Other As}^sets^1,27^5,58⁷^1.25%
^{Real Estate Partners}^hips^a^1,23^3,29^1.21%
^Insu^{rance, Face Value}^922,⁵⁹⁶^0.91%
^{Art 858,}⁷²³^0.84%
^{Other Non-corporate}^B^{usiness Assets}^a^785,⁹⁰⁸^0.77%
^{Non-real estate Farm As}^sets^b^559,⁵⁶⁰^0.55%
^{Unclassifiable Mutual Fu}^nds^519,⁹⁵²^0.51%
^{Depletables and/or Inta}^ngibles^328,⁷⁸²^0.32%
^{Mixed Bond Funds}^245,³²²^0.24%
^{Federal Savings Bonds}^221,⁸¹⁶^0.22%
^Insu^{rance, Policy Loans}^32,9²²^0.03%
^Source:^Int^{ernal Reve}^{nue Servic}^{e, Statistics of Income,}^{Estate Tax Returns Filed in 2005}^{, IRS}^{, SOI un}^published
^{data, November 2}⁰⁰^6.
^a.^{Indicates an as}^{set that is in}^{cluded in this re}^{port’s definition of a bu}^{siness estate.}
^b.^{Indicates CRS-interpolated estimates, see text for}^methodology.
Table 4 presents detailed data on farm and business assets by gross estate value. Relatively large
farm estates, those valued between $10 million and $20 million, comprise a relatively larger share
of total estate value for that estate size category. Overall, however, farm estates appear to be
evenly distributed across the estate size categories. Note that farm assets and farm real estate
account for approximately 3.5% of total taxable estate value.
In contrast to farm estates, assets typically associated with non-farm businesses are concentrated
in estates valued over $10 million. In fact, of the $11.0 billion in total business assets in estates,

over $7.9 billion is held in those estates valued over $10 million. As a consequence, smaller-
business taxable estates, those valued at less than $10 million, contribute very little to the estate
and gift tax base.
Table 4. Percent of Taxable Estates Filed in 2005 with Farm Assets and Business
Assets by Size of Estate
^{Taxable Estate Value}^{Percent of Taxable}^{Estate Value in Class}
^{($ in thousa}^nds)^{Represented by:}
^{Size of Gross Estate}
^Gross^Farm^Assets^a^Business^Assets^Farm^Assets^Business^Assets
^{All Returns}^101,⁷⁷^1,90⁶^3,55^2,50⁸^10,9^63,7⁷⁹^3.49%^10.7^7%
^{$1.5 to $}^{2.5 million}^16,8^66,7³³^518,⁸⁶⁵^627,⁰⁴⁵^3.08%^3.72%
^{$2.5 to $}^{5.0 million}^20,7^63,2⁵⁸^630,²¹⁰^1,12^5,04³^3.04%^5.42%
^{$5.0 to $}^10.0^milli^on^15,5^90,3¹⁸^457,²⁵¹^1,27^4,62⁶^2.93%^8.18%
^$10.0^{to $2}^{0 million}^11,2^51,9⁴³^626,⁶²⁹^1,31^1,08⁶^5.57%^11.6^5%
^$20.0^{million or more}^37,2^99,6⁵⁴^1,31^9,55²^6,62^5,97⁹^3.54%^17.7^6%
^Source:^Int^{ernal Reve}^{nue Servic}^{e, Statistics of Income,}^{Estate Tax Returns Filed in 2005}^{, IRS}^{, SOI un}^published
^{data, November 2}⁰⁰^6.
^a.^{Includes t}^{he CRS-estimated value of farm real estate.}
In summary, repeal of the estate and gift tax would clearly achieve the policy objective of relief
for estates composed of farm and small-business assets. Farm assets and business assets,
however, represent a relatively small share of total taxable estate value, approximately 14.3% at
the most. For more on the estate tax and businesses, see CRS Report RL33070, Estate Taxes and
Family Businesses: Economic Issues, by Jane G. Gravelle and Steven Maguire.
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