Death Tax (Estate Tax)

[Bades]

Thought this was an interesting article as my father is currently receiveing some inheritance at the moment.

Death tax an unfair triple tax that government should eliminate from code - The Independent Florida Alligator: Columns

Author makes a good point about the "merely wealthy" that end up paying in the long run.

[jpg7n16]

Is your father receiving over $5 million?

Anything less than that, and there isn't any estate tax owed.


Far richer people, affected much more by the estate tax are in favor of it: Buffett backs estate tax, decries wealth gap | Reuters


And I think the author makes a pretty stupid point - "why would you want to earn another $5 million when $1.75 of it is going to taxes when you die??"

Uhhhh... cause my heirs will be $3.25 million richer?

From: Death tax an unfair triple tax that government should eliminate from code - The Independent Florida Alligator: Columns

Would you purchase another dealership, which would likely increase your net-worth by $5 million over the course of the next 10 years?

You know the government will take 35 percent of it from your heirs when you die.

Does it start to change your mind about taking this enormous risk with your personal assets?

No. That's business. You take risks. You build your legacy. You make money. That's just what you do.

Besides, always consider your source...

From: Death tax an unfair triple tax that government should eliminate from code - The Independent Florida Alligator: Columns

Travis Hornsby is a statistics and economics senior at UF. His column appears on Mondays.

The more I read what people have to say on taxes, the more I agree with MonkeyMama. In one of her posts, she said something along the lines of "I'm amazed at how the wealthy get the poor to fight so that they pay less in taxes."

Here we have a college kid, with likely little to no income, fighting for the rights of millionaires to pay less on taxes he'll never pay. Funny system, huh?

[MonkeyMama]

Jpg - you know I am right.

Actually, very simple estate tax planning is available and well utilized by the "merely wealthy." I think this article is a pile of misinformation and bull, personally.

For reference, I have partaken in this simple estate tax planning - when I was like 25 and made a whopping $50,000 per year. (Because I had kids and substantial assets with housing prices, at the time). Anyone with $1 million+ in assets I would assume has the sense to hire an estate lawyer and buy some life insurance. Neither of which is expensive at all, until you get into the millions and millions of net worth.

[LivingAlmostLarge]

Mentioned this in another thread that the rich don't pay estate taxes even over $5M. They pass it along in trusts, they pass it along by gifting it before death, etc. Sorry those rich enough to need an attorney/cpa take advantage of ever loophole to avoid paying a penny of tax.

It's the middle class saps who have $1-2M stashed that pay taxes. Really rich? Give away $200k property to 4 daughters tax free because of a tax break.

[jpg7n16]

Mentioned this in another thread that the rich don't pay estate taxes even over $5M. They pass it along in trusts, they pass it along by gifting it before death, etc. Sorry those rich enough to need an attorney/cpa take advantage of ever loophole to avoid paying a penny of tax.

Not true. Trusts that are still in the estate are considered part of the estate at passing. If assets were gifted earlier in life, then gift tax was paid.

If you have a $20M estate, you don't just pay a lawyer to create a trust which magically changes the rules of the IRS. Either you pay the estate tax when it passes to benes of a living trust, or you pay gift tax when you gift it to an irrevocable trust. (both have the same rates)

If you pay 35% gift tax to transfer $7M to an irrevocable trust that saves you from paying a 35% estate tax, did you really change anything? (except that you get to avoid estate tax on further growth, but as it's no longer your asset that makes sense that you shouldn't be taxed)


Besides, if they avoid all the taxes, where does all that revenue come from??

From: The Estate Tax Is Fair, and We Need the Revenue - WSJ.com

In 2008, for instance, the estate tax collected about $29 billion from fewer than 20,000 estates—the wealthiest 1% of the 2.5 million people who died that year.

I don't see anything wrong with planning the transfer of your assets to your loved ones in the most tax efficient manner - but to suggest that in so doing, most wealthy families avoid ever paying a penny of tax, is absurd.

It's the middle class saps who have $1-2M stashed that pay taxes. Really rich? Give away $200k property to 4 daughters tax free because of a tax break.

The middle class "saps" with $2M estates have a full estate exemption (as estate is under $5M). And therefore literally don't pay a penny in estate tax.


And what tax break specifically are you referring to? Link?

[LivingAlmostLarge]

ACtually jpg you must have bad tax planning attorneys. Trust me it's tax free she's mentioned it. It can be things like putting the name on the deed in their name. Trusts set up for college for each kid which get "distributions", $25k/year tax free that everyone can do.

The particular person has mentioned that it's due to tax planning and avoiding taxes they are giving it away earlier.

[jpg7n16]

ACtually jpg you must have bad tax planning attorneys. Trust me it's tax free she's mentioned it. It can be things like putting the name on the deed in their name.

Putting the kiddos on the deed, when the kids haven't paid for the property, is considered a taxable gift to the extent that such gift exceeds $13,000 ($26k if gift splitting)

From: Gift Tax

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

From: Joint Accounts POD Accounts - Using Joint Accounts and Payable on Death Designations to Avoid Probate

Gifting problems - If the original account owner adds new owners and the new owners don't contribute any money into the account, then the original owner may be deemed to have made a gift of a portion of the account to the new owners for gift tax purposes. If the gift amount exceeds the annual exclusion from gift taxes (currently $13,000 for 2009), then the gift must be reported to the IRS on a gift tax return (Form 709). In addition to the federal gift tax, two states, Connecticut and Tennessee, assess a gift tax at the state level on their residents as well as nonresidents who own real estate in the state

Though technically, the couple can gift the house and use their lifetime gift exemption, but that will deduct from the estate exemption, meaning they'd have to pay it later.

From: The Gift Tax - TurboTax® Tax Tips & Videos

So why not give all of your property to your heirs before you die and avoid any estate tax that might apply? Clever, but the government is ahead of you. As noted above, you can move a lot of money out of your estate using the annual gift tax exclusion. Go beyond that, though, and you begin to eat into the exclusion that offsets the bill on the first $5 million of lifetime gifts. Go beyond the $5 million and you'll have to pay the gift tax—at rates that mirror the individual income tax, up to 35% in 2011.

From: 2011 Gift Tax Exclusion - Annual Exclusion vs. Lifetime Exemption

In other words, the lifetime gift tax exemption is tied directly to the federal estate tax exemption such that if you gift away any amount of your lifetime gift tax exemption, then this amount will be subtracted from your estate tax exemption after you die.

Trusts set up for college for each kid which get "distributions", $25k/year tax free that everyone can do.

The particular person has mentioned that it's due to tax planning and avoiding taxes they are giving it away earlier.

Like I said above, I see no reason why someone cannot create a plan to systematically gift away their assets while alive. That just makes sense to plan.

That's not a loophole, it's common sense planning.


But it would be very difficult for a "wealthy" family with say $50-100 million, to completely avoid estate/gift taxation. They can structure it to give away $10M as their exemption, but how many times would they have to make those $26k gifts to get rid of all the rest?? (1538 and 3462, respectively) Very difficult to completely avoid the estate tax.

[bjl584]

The sixth word of the article is "Obama." Probably means a right wing article. Yes it does.

If I am a successful business man, in no way would the consequences of a death tax have any bearing whatsoever on me trying to build and expand my business. Let the accountants and lawyers worry about that. I'd just want to do what i love and run my business. To say that I wouldn't buy another car dealership becasue my kids would have to pay a death tax is just stupid. As JPG pointed out, the author is a college student that doesn't have a successful business or $5 million dollars.

[Bades]

I'm not sure of the details of his inheritance, after my grandpa died they started actively trying to get as much money out of the estate, while my grandma is still alive. I think they could get like 13,000k for each child, grandchild, and great-grandchild? So basically the more relatives there are, the more you can get out tax free. Or something like that?

[jpg7n16]

I'm not sure of the details of his inheritance, after my grandpa died they started actively trying to get as much money out of the estate, while my grandma is still alive. I think they could get like 13,000k for each child, grandchild, and great-grandchild? So basically the more relatives there are, the more you can get out tax free. Or something like that?

If his grandpa's estate passed to his grandma, then yes - she can gift up to $13k per person per year, completely gift tax free. Anyone can do this - rich or poor. If she wants to make those gifts to 100 people, that's $1.3 million per year.

If his grandpa's estate did NOT pass to his grandma, then no. The $13k gift limit does not apply. This is not a lifetime gift situation any more, but rather an inheritance. They should distribute the inheritance in accordance with the will. And usually IF there is any estate tax due (not common), that should be paid by the estate before making the distributions to the heirs. In the case of an inheritance, they can distribute as much as they want.

[Angio333]

Estate taxes are unethical. The money has already been taxed.

[jpg7n16]

Estate taxes are unethical. The money has already been taxed.

Then so are sales taxes. And state income taxes. And SSI taxes. Etc.