Estate Tax Stupidity

**bjl584** · 08-04-2010, 08:49 AM

There are ways around everything. Talk to a CPA or an attorney. Incorporating, forming an LLC, or setting up a trust may exempt you and your estate from having to worry about the death tax issue.

**Debt Vigilante** · 08-04-2010, 08:59 AM

The beauty of a representative democracy is that if you are not happy with congressional leaders, you have the chance to vote them out every two year. You have about 100 days before you can vote...

The paradigm that many of our current leaders see through is highly socialistic. Its not that they just want to destroy America, rather they THINK the policies they enact are bettering America. I personally don't like the way things are going in Washington and I will vote for a real "change" in leadership in November.

All you can really do is vote. I used to get worked up about government policies, but I realized that all anyone can really do is vote - and educate others who may also vote. If you want to have a more direct contribution to policies coming out of Washington, run for Congress and get elected.

**littleroc02us** · 08-04-2010, 10:13 AM

Making people aware about the corruption in Washington is what I'm about. Education reduces Ignorance.

**MonkeyMama** · 08-04-2010, 11:05 AM

Actually, this report is not true. Nothing passed in the House about estate taxes. I don't see anything about it in the news. (As with any tax story shared here - usually rife with misinformation).

Anyway, the Estate tax is really worth worrying about. It affects 0.3% of the population. It is a myth that "small business and farmers are financially ruined by the estate tax."

We can debate the merits of the Estate tax, but the truth is it doesn't amount to a hill of beans for about 99.7% of the population. For the people it affects (wealthy), they can hire lawyers and accountants to get out of much of it. (Which anyone with a $1 million+ business would do!)

If the estate tax threshhold was reset to $1 million, I do think it would affect more middle class, over the long run. But, it is highly unlikely this will even happen. The truth is, even at $1 mil threshhold, most families with $1 mil - $3 mil of wealth won't pay a dime of estate tax. At that asset level, there are plenty of tax strategies that cost pennies to implement. (Trusts, gifting, etc., etc.).

**dfeucht** · 08-04-2010, 12:25 PM

Thanks MonkeyMama for looking to see whther the inital post was actually true.

Actually the law that was used to raise the estate tax threshold expires on Jan 1, 2011 and resets the estate tax to 55% for the amount OVER $1 million. CNN noted that at most about 1.75% of estates would be affected by the reduced threshold in 2011. Also this year there is no federal estate tax (presently) although most believe this will be fixed retroactively to Jan 1. I haven't seen the expected fix get passed yet - the senators can't seem to do anything because they'd rather bicker to the media.

In all honesty I don't believe the number will reset in 2011 to $1 million at all. I think the Democrats propose the number to be in the $3 - 5 million or so range while Republicans want it completely eliminated ar higher (over $10 million). These are only based on my recollections so they may be somewhat off.

Anyways - there are lots of arguments for and agains the estate tax, but I don't think it is all of a sudden corruption in Washington (there are plenty of other examples of that).

**thekid** · 08-04-2010, 12:50 PM

As a canadian, I've always found it oddly refreshing that Canada (a generally much more taxed jurisdiction) has no estate or gift tax.

**littleroc02us** · 08-04-2010, 01:11 PM

You couldn't be more wrong. It is true, just read Bloomburg Business Week and this link: Estate tax in the United States - Wikipedia, the free encyclopedia and one of the actual documents: http://www.nationalaglawcenter.org/a...rs/RL33718.pdf. It's all over the place if you search for it. Monkeymama what is your source for your post? Also, if your calculation is correct .3% of the population will have an estate value of only $1 million that is quite a sad story. It really isn't that hard to have that amount of wealth after 30 years. Just max out a Roth IRA over 30 years @ 12% return you will have way more just a million. Plus if your married and your spouse does the same your wealth would be over 3 million. Plus this is done by someone who only makes a median income of around 50k a year. It's to bad people shoot for such low stars.

**jpg7n16** · 08-04-2010, 02:14 PM

Well if you note the date on the 1st page of the document you linked to, it says "November 3, 2006"

In a sense, you and MM are both correct. Under current law, in 2011 the estate tax will revert back to affecting estates w/ over $1mil. That is the extent of how far into the future the Bush tax cuts made it.

But MM is also correct that there is no new legislation passed confirming that threshold. It is most likely to undergo legislation to bring it up towards the 3.5mil exemption of 2010.

It's not just that people don't have over $1m, it's more that people use their Roths to live off of and slowly eat it away. They also give away to family members before death, establish trusts, etc. Certain steps can be used to lower the value of one's estate.

It's also not fair to use a common income from today, to evaluate how much someone should have accumulated by today. 30 years ago, $50k was more like $21k. (assuming 3% inflation rate of income since 1980) So run the numbers again using $21k and you'd find it's harder, but not impossible, to save $1 million.

**cptacek** · 08-04-2010, 06:53 PM

You can get around it by dieing this year, when there is no estate taxes.

**cptacek** · 08-04-2010, 09:38 PM

Originally posted by MonkeyMama View Post

Actually, this report is not true. Nothing passed in the House about estate taxes. I don't see anything about it in the news. (As with any tax story shared here - usually rife with misinformation).

Anyway, the Estate tax is really worth worrying about. It affects 0.3% of the population. It is a myth that "small business and farmers are financially ruined by the estate tax."

We can debate the merits of the Estate tax, but the truth is it doesn't amount to a hill of beans for about 99.7% of the population. For the people it affects (wealthy), they can hire lawyers and accountants to get out of much of it. (Which anyone with a $1 million+ business would do!)

If the estate tax threshhold was reset to $1 million, I do think it would affect more middle class, over the long run. But, it is highly unlikely this will even happen. The truth is, even at $1 mil threshhold, most families with $1 mil - $3 mil of wealth won't pay a dime of estate tax. At that asset level, there are plenty of tax strategies that cost pennies to implement. (Trusts, gifting, etc., etc.).

If everyone can get out of it, what is the point of keeping a tax like this around?

**littleroc02us** · 08-05-2010, 05:24 AM

All you have to do is use a compound calculator and my calculations are perfect. If you make 12% on Mutual funds for 30 years and adjust for 4% inflation than it is quite the easy calc. Have you guys heard of the 12/4/8 rule? It is a very common theory in economics to help figure retirement. The 12 is the interest, the 4 is for inflaction and the 8 is the remaining interest you will live off of. There are always variables, but to think that people cannot achieve well over a million dollars in their estate is a sad story. I didn't even include what my wives and my 401k value will be in 30 years, plus what my parents leave us as an inheritance someday. In fact my parents were both teachers and are quite wealthy in their retirement, because unlike most americans as you claimed can't save money in retirement due to lack of income or something. In my families case there are no excuses. We just work hard and save well.

**littleroc02us** · 08-05-2010, 05:37 AM

One way for you guys to have a good idea of whether or not your putting enough away each year is to take your gross income and times that by your age and divide by 10.. According to my figures I should be at 330k right now. I am age 39 and make around 85k combined with my wife. We have only put away around 125k so we need to get our butts going. I started a little late and have a bunch of catching up to do. I figure if I max out my roths for 30 more years and it averages 12% I will have 1.5 million, plus my wife is doing the same so multiply that by 2. Like I stated before that doesn't include what we make in our 401k's which I just received a statement that estimated the future value will be around 500k for mine by age 63. Plus if there still is some social security left that will just be play money. Also, my goal is to involve myself in real estate just as soon as we pay off our mortgage using a cash based system. We have a ton of plans and I don't intend on sitting on the sideline waiting for the Gov't to help me. As for the Estate Tax thing, I'll just have my lawyer figure that out for me.

**jpg7n16** · 08-05-2010, 06:45 AM

I believe you're missing the key point - we both agree that if you begin investing today, in 30 years you should easily have well more than $1 million.

But if you began 30 years ago, it's much harder to have earned that $1mil by today.

Using the data from this site: http://www.cbo.gov/OnlineTaxGuide/Page_2A.htm

I created a little spreadsheet that accounts for a single individual who contributed the maximum allowable contribution to his IRA every year since 1982 (28 years ago). Growing at 10% each year - his balance at the end of 2010 would be $321,866.95.

If you account for someone who was married, that number would double to $643,733.89, but since half the account would be in the estate of the spouse, it is irrelevant (and it would still be less than $1mil).

At 12% returns, this individual would have $455,430.75. Still a ways to go to reach that 1mil.

If the exemption is still $1mil in 30 years, something is terribly wrong.

**Joan.of.the.Arch** · 08-05-2010, 09:48 AM

Not to be too picky about it, but Roth IRA has only existed since 1997*, 13 years.

Estate Tax Stupidity