Recent Internal Revenue Service Statistics of Income data reflect some of the changes that affected estate planning last year, including the COVID-19 pandemic and changes to the tax law. The IRS saw an increase in the number of estate tax return filings, as well as the amount of taxes paid, in 2021 compared with 2020. According to Tax Notes, the average size of estates fell 13% to $30.8 million.
The total number of returns filed in 2021 was 6,158 (up from 3,441 in 2020), with 3,574 of those being nontaxable returns. Though it can’t be said with certainty, because an automatic six-month extension to the nine-month time frame to file is available after a decedent’s death (along with other further available extensions), the increase in the number of filings may be a result of the COVID-19 pandemic. Typically, the estate tax is filed in the year following the year of death (though taxes owed must be paid within the nine-month window following the death) with 2020 being the year that saw the largest number of COVID-19 deaths since the beginning of the pandemic.
The total value of estate tax filings in 2021 was $189.65 billion, compared with $122.25 billion the previous year. Based on Tax Notes’ analysis of the data, that rise may have been partly driven by stock market performance—publicly traded stock accounted for $49.2 billion of the value of estates filed for in 2021, a sizable increase from $31.9 billion in 2020.
The number of taxes paid by these estates also increased, with the average tax rate on 2021 filings at 9.7%, a slightly more than 2% increase from 2020. The estates in the $50 million or more range were the primary drivers of the higher effective tax rate, with estates falling into the category paying 50% more than what estates in that category paid in 2020, per Tax Notes.
Also reflected by the data is the fact that many foundations gave even more generously than usual in 2020, in direct response to the pandemic. The data highlights that charitable bequests dropped to just under $25 billion in 2021, compared with $29 billion in 2020, despite an increase in filings and the value of estates.
The effect of the doubling of the estate and gift tax exemption under the Tax Cuts and Jobs Act is also visible in the data. The total number of estate filings fell by more than half in 2019 from the previous year, when there were 6,409 filings. Furthermore, the number of filings for estates valued at less than $10 million dropped from 1,975 in 2019 to a mere 532 filings in 2021.