Welcome to the fray, CTB!
pldennison wrote:
This is not true. For example, although a significant portion of Bill Gates’ wealth has not yet been taxed as income (it’s stock he got cheap which has appreciated, and taxes aren’t paid on stock until it’s sold), it will be taxed as income even if he dies. Then the estate tax will kick in.
Umm, care to back that up with a source?
CTB> With proper estate planning, the “ceo” of a family will pay NO estate taxes, unless they are in the “filthy stinking rich” categaory, and in that case it will simply cut out the “stinking”. And if the CEO of a co owns 50% or so of a Companies stock, yesirree, the Estate tax will cut in, upon his death. So your example is completely without merit. Sorry.
MrZ, if the estate is about 1M, there likely will be no estate tax, especially if your Mom outlives your dad. So you don’t have to worry about “others” getting a portion of it. And if your dad had half a brain, or was not an asshole (as you have characterized him, I believe), he should have been transferring 10K of that business to you absolutely tax free for those 18 years, so at least 180K would be yours now, or “yours” in a trust, completely free of any taxes, especially estate taxes. Don’t blame the tax system if he won’t use it right. Blame him.
Ptahlis:
No problem. I guess at first glance you thought my post consisted of subvective ( subpar + invective ).
I did have a point there though. Are your rights ended by your death?
SouthernStyle:
I didn’t think that you were adding to the thread until I read your sig line:
“*Only a genius or a fool would make such a move;
SouthernStyle, being both, had no choice *”
Nice. I have changed my mind.
CTB:
Welcome aBoard.
I agree that your analogy is how things are commonly viewed.
I am asking if there is a better way of looking at it.
Why assign the rights to heirs?
Why not put the money back into the system so that more people can benefit?
Daniel:
It seems to me that CurtC has stated that income tax must be paid before the estate tax.
Do you disagree with this statement as well?
( Just for my own general knowledge. )
Hi 2sense,
You’re entirely correct that I’ve not contributed much to this thread. I was away from the SDMB, not returning until July 17 at which time this thread was well on its way. I chose to stay out of the fracas, instead reading, watching, and learning.
A few days ago I chose to write a short note in support of Mr. Z. Of course, he’s quite capable of expressing his own opinion and one of the board’s more articulate and uninhibited posters. He also happens to have a pretty damned fine set of opinions on how this country continues to make it tougher and tougher on those with ability and desire.
You want some substance? Here ya go.
The “death tax”, like unions, had their place in history. Both were intended to relieve the extremely rich of some of their wealth so that it could be “passed on” to those of more modest means. Without both, it’s highly unlikely that we could have progresses to where we are now. But as with most everything, the marching of time renders the obsolete.
Today, we can thank those same unions for pickup trucks that cost over $30,000, the inability of state governments to hire, train, and retain qualilified personnel due to their inability to drop the deadwood, delivery boys that make $45,000+ (UPS, USPS, etc), and school systems full of “tenured” faculty that need replacing.
Estate taxes work much the same way. In another thread I used an example of how the death tax can wipe out a small business when the owner dies. (My strong presence in this other thread also contributed to my relative silence here.) Despite a previous post exclaiming how “with proper planning” estate taxes can be avoided on a 3 million dollar inheritance, it doesn’t always work this way. Construction businesses are typically run by people that “grew up” in the business. They start out as a common laborer, acquire a skill in the business, show and/or develop some leadership abilities to become foreman, and before you know it they feel that they want to get into business for themself. They don’t always take the smart way and hire an accountant and lawyer to set up the business. Often, they work out of the back of their pickup truck because that’s all that they can afford. Hard work brings them success. The accountants and the lawyers have contributed not ONE nickel to the equation. And so the slob continues to do what he’s done his entire life. Work – and work hard.
When the guy dies he’s not done the estate planning that would reduce or eliminate estate taxes. And the business is in jeopardy because the entitlement mentality in this country has to “have theirs”.
So now we have a third voice in the battle. The voices are:
-
It’s mine. I worked hard for it and should be able to do with it as I choose.
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It’s NOT your sons. It should be confiscated by the government and spread out to everyone.
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Accountants. We must keep the system as is so that you pay me to keep the government from taking it.
If paying an accounting to “protect” the estate from inheritance taxes is such a fine idea, wouldn’t everyone (except the accountant) be better served if the tax were structured so that everyone knew when, where, and for how much the government was truly going to intervene? And if I understand correctly, that’s most estates.
But then, the “bonanzas” created by the deaths of Gates, Walton, Kroch, etc. do tend to exacerbate liberal minds.
I bounced around a bit. Pick any one of the three or four topics and run with it.
Just a couple of observations. My parents died 2 years ago a month apart, without wills. Their estate was greater than the exempted amount. About $14G in attorney’s fees saved several hundred thousand in estate taxes. The $625G exemption is per person. So for a couple, it is $1.25 Mill. But, it they hold their property jointly, they have to have wills providing that should one predecease the otrher, $625G goes to someone other than the surviving spouse.
So, when my mom died without a will, her half of the estate went to my dad. I.e., they lost out on the ability to have that $625G tax exempt. I went with my dad to talk to a lawyer who suggested he disclaim his interest in my mom’s half of the estate. Therefore, it would pass directly to his children, and we would get the benefit of my mom’s $625G exemption. Before this was processed, though, dad died. So the lawyers proceeded to disclaim my dad’s interest posthumously! They presented it to the probate court as a blatant tax dodge, and it sailed through without question.
Another thing I remember from talking to the lawyers is that the $625G is a lifetime gift and inheritance exemption. I.e., your $10G a year per person is added into your lifetime exemption. So if I give $10G a year to 5 people for ten years, that $500G comes off my exemption and at death, I only have $125G to transfer tax free.
It is very awkward when your folks ask you about estate planning, and your response is, “Your best option is to give large sume of money to me, my spouse, and my kids, on a regular basis.”
I also recall the lawyers strongly advocating trusts. At their advice, my father intended to set up trusts for each of his 14 grandchildren, but he died before that could be accomplished.
Another option is, donate large portions of the estate to charities.
I remember being frustrated at my parents bitching about taxes, when i knew they didn’t have a will. I’d say, even if you don’t give it to me and my sisters, why don’t you choose charities to give it to, instead of having it just go into the general public fisc. And if you aren’t going to take steps to avoid pissing away large sums of money after you die, then don’t bitch and moan about much smaller sums on a yearly basis.
Well, I would have to say that the “last wishes” are a right granted to the living to be carried out upon their death. Once the person is dead, they really no longer have the right, but we have to carry out those final instructions so that the living can have the expectation that their last wishes be carried out, and so forth. Plus, of course, lots of folks think Uncle Ted is still watching…
Daniel, My dad is indeed an asshole. I doubt that he has placed any money in a trust. But barring a sudden death, I will probably find his estate liquidated and in the walk in safe in the basement. He will most likely turn everything into cash, in which case the gov’t will never know about it.
southern wow! Thanks for the glowing praise.
Danielinthewolvesden wrote:
What I was so unsuccessfully trying to communicate is that I feel that a family makes financial as well as other decisions based upon the common good of the family. Simply because the majority of the assets reside in one member’s account, this does not mean that each and every member of that family has not contributed to the growth and nurturing of that account. As such, that account should truly be considered the family’s upon the death of a member.
One’s will allows one to expand and restrict the list of heirs to those who have truly made a person who and what they are. Those people either directly assisted you, or made your environment such that you could achieve what you achieved.
The government has also helped to create that environment, and one pays one’s dues for that environment through countless other taxes. The government, and the greater public has absolutely no further claim upon these monies. They got their share during the person’s life.
Hopefully that clarifies things. If not, please remind me again of its lack of merit.
2sense wrote:
Thank you for the welcome, 2sense.
I apologize that I was not clear in my post. I think that the common view is a mixture of what has been presented on this thread. In general, people think that the money should be left alone up to a point. For the filthy rich, though, the public begins to want to stick to 'em, jsut as they love to do throught he courts with rediculous awards. My arguement would be that these totally arbitrary limits be removed just as the entire estate tax should be removed. To take it further, any exchanges of monies or property among family members should be protected. A family should be viewed as a single economic unit, and just as there is no fee to move money between your savings and checking account personally, there should be no government interference in the flow of money within the family.
Granted, things get a bit more complicated if one goes beyond the nuclear family to other relatives or friends. Going there will create loophole heaven. I propose the solution for nuclear families only (what constitues a “Real” family is a topic for another thread).
CTB
You do realize that NO estate taxes are paid on that portion of the decedent’s estate that goes to his/her spouse, don’tcha?
After a few minutes with my trusty Master tax guide, I unearthed an additional 675K exclusion for “family run small businesses”, so I guess that puts the spectre of “the heirs having to sell off the family business in order to pay the estate tax”, finally at rest. IE, the “family business”, assuming the wife survives, would have to be worth over 13 million, without any estate planning, before a penny was paid. I think in the 13>15 million range, we can stop calling it a “SMALL business”.
Southern style; You seem to say that the proper estate planning is something folks should not have to do. How many small business owners just add up the gross reciepts and send 28% of the gross to the IRS without taking any deductions? That would be stupid, and so is not doing any estate planning.
2sense: yes, i am saying curt is wrong.
daniel, I’m now confused. How does this additional 675k exclusion result in the shielding of 13 million dollars?
I’m saying that the guy shouldn’t have to do estate planning. If I concede that there should be estate taxes, an unlikely prospect at best, the circumstances won’t include paying accountants and lawyers many thousands of dollars so that the guy that has earned the money can keep it.
The entire industry of “accounting” needs to be reworked so that they can deal with how the company can make money, not how they can keep it.
Then Danielinthewolvesden wrote:
It seems like your reply doesn’t relate to what I was saying. 2sense thought so too. pldennison had the impression that unrealized capital gains could be passed on to the heirs without ever having income tax paid on them, and therefore the estate tax is the only tax that would be ever be collected on Bill Gates’ wealth.
If the estate tax is the only tax that would be collected, then a couple with a net worth of less than 1.3 M$ could pass on all their appreciated stock to their heirs, without the IRS ever collecting a penny on the appreciation. I find this hard to believe.
BTW, I still haven’t heard how someone with a net worth of 4 M$ could shelter this from the estate tax. You keep bringing this up, but I don’t know how it can be done, and I could sure use the info.
Something that’s not been addressed here, but should be (perhaps as another thread) is the beating that tax deferred accounts will take upon the death of the account holder.
Assume a 401k or other such account that has grown to be worth millions of dollars. (It’s not a problem yet, but wait until the youth of today has been investing for 45 years.) Now both income and inheritance taxes are due. That’ll put a hell of a dent in it.
Estate taxes won’t affect any of your 401(k). It’ll only affect 401(k)s inherited by someone else. Once your heirs get ahold of the 401(k) plan’s money, it’s not your 401(k) anymore, is it?
All this talk about “your” right to what you’ve earned neglects the fact that your heirs didn’t earn the inheritance you gave them. Let those damn young whippersnappers get their own jobs and make something of themselves, by cracky.
You’re on the right track, tracer, but you need to think on a macro scale.
You were referring to the millions of people who want to stake claim to an inheritance by taxing it to smithereens, weren’t you?
CurtC wrote:
You can’t shelter it ompletely, but if you have a lot of heirs, and you’re willing to give up some of your estate to them before you die, you can reduce the tax by making gifts to your heirs.
Gifts are taxed at the same rate, and with the same brackets, that estates are – EXCEPT:
[ul]
[li]The first $10,000 of gifts per year per recipient is totally and completely exempt from the gift tax. If you have 4 heirs, and you give each of them $10,000 worth of stuff per year for 7 years before you die, you will have transferred $280,000 of that $4,000,000 estate of yours totally tax-free.[/li][li]The gift/estate tax is graduated, just like income taxes are – but estate taxes are applied to the whole estate as a big lump, while gift taxes are applied per recipient. A $4,000,000 estate would get hit with an estate tax of $1,840,800. If you gave $1,000,000 to each of your 4 heirs before you died, though, each of the 4 gifts would get hit with a gift tax of $345,800, for a grand total of only $1,383,200 in taxes. If you had 8 heirs instead of 4, and you gave $500,000 to each of them before you died, each of the 8 gifts would get hit with a gift tax of $155,800, for a grand total of a paltry $1,246,400 in gift taxes.[/li][li]In the case of estate taxes, the whole estate is evaluated, and the estate tax is taken out of the estate itself to pay for the tax. Effectively, it’s a kind of “double taxation,” since the money used to pay the estate tax is counted when computing the estate tax. In the case of gift taxes, though, the tax is paid by the giver on the amount given, out of money the giver didn’t give away as a gift. This means that, if the giver of a gift “saves up” a little of the money he would otherwise have given as part of the gift, to pay the gift tax on it, the amount of the gift will be a little less, and thus the gift tax will be a little less, too.[/li][/ul]
Note that each person has a unified lifetime gift/estate tax credit pool of $220,550 – which will increase to $345,800 if you’re still alive in the year 2006.
Hey tracer,
That doesn’t really solve the problem. If I’ve got a net worth of 4 million, I’d like to think that in the next seven years I’d be able to invest it well enough for it to earn enough to more than offset whan the gift loop-hole will so-called “shield”.
Oops, dropped the decimal point, I meant 1.3 million. And if the wife survives, her half is not included, thus 2.6 million. I meant the decimal point in all those figures, Oh well. Still, $2.6M is a pretty big “small business”, and that is without “estate planning”.
If you own the stock outright, it is just like a house, or whatever, thus when you die, the “unrealized capital gains” is part of your estate. Thus, that portion which is excludable or shelterable is not taxed. So if your estate was only 600K worth of stock, your estate would pay 0 taxes.
We are not talking about ESOPs, etc, tho.
Curt: tracer has part of it, and there is also trusts, and life insurance, and other things. Estate tax planning is a speciality, and thses guys charge big bux to do it for you. In any case, when the spokesperson for one of the 2 largest tax publication companies says you can do it, with proper planning, and my “experts” say about the same thing, I’ll take their word for it. The Mercury news had substantially the same figure.