The estate tax and other red herrings

I am hope some of you are right. My wife and I are going to get to test out the “estate taxes cause the loss of the family farm” claim sometime in the not so distant future. My FIL recently disclosed parts of his will to the family. One thing my wife and I will inherit is the 300 acre family farm in New Hampshire. My FIL restored it from a falling down dump and wants to keep it in the family forever. He is even having the original colonial cemetery 50 yards from the house restored so that he can be buried there. I don’t know how much that is worth but that is a lot of land even for New Hampshire and it will run into some number of millions. We are the only ones in the family suitable for that particular inheritance. It is a working organic cattle, hay, and Christmas tree farm but it never turns a real profit. Talk about the ultimate white elephant gift. Our job is to preserve it and keep the place running with whatever money comes with it into perpetuity. I hope the estate tax laws will be favorable when the time comes because we will just be stewards for a family treasure and won’t ever receive any real money for the endeavour. My FIL is a smart guy with that stuff but I hope he plans well or things could go bad very quickly.

You seem to be answering a different question to that which I asked. Bear in mind we are talking about the point at which someone is dead. I’m interested in the deservedness of the living, not the wishes of someone who no longer is.

And similarly

No, UncleBeer, you are. If we were having a debate about whether governments should tax anything, your question would be relevant. We’re not.

Estates are amounts of money that don’t belong to anyone because the person who owned them is dead. That provides at least some rationale for them being a point at which to tax.

You want to have a debate about whether there should be tax, you go right ahead, but that’s not the debate we were having.

It looks like the administration may be attacking estate taxes on another front.

The IRS recently announced that they would be laying off half of the people who enforce estate taxes. The rationale is that by next year, there would only be 30,000 estate tax returns and that the number would continue to drop under almost any legislative scenario.

These are some of the most effective tax collecters at the IRS, they (on average) discover $2,200 of uncollected taxes per man/hour and there is room for MORE enforcement in this area (apparently really rich people dodge taxes at a higher rate than regular people).

So the question is why is this administration so hell bent on repealing the estate tax if there are so few people affected by it and why fire the most effective tax collecters at the IRS?

Am I the only one that thinks this ia a bit underhanded and stinky?

We’ve been haggling about the estate tax on this board about as long as I can remember. Here’s one old thread about it, and here’s another. I personally made posts in both of those hoary old threads (here and here) that I feel are still relevant.

To recap my points for those uninclined to drag up ancient threads: back in 2001, using 1999 numbers, I calculated that more than half of the total estate tax collected in the entire United States came from just 3,050 families (the decedents leaving estates worth more than $5 million). In the same year, there were almost 50,000 estates valued under $1 million that paid estate tax (the exemption was $675,000 per individual back then), for an average of $16,000 per estate. On a transfer of more than $600K, that ain’t bad at all. And of course the exemption amount has increased quite a bit since then.

In addition, if you taxed estates like income, a large estate would wind up paying more taxes. I calculated that a yearly income of $1 million (in 2002) would be taxed to the tune of $376,722, while an estate of $1 million would be taxed a mere $125,250, or about one-third as much.

For both of these examples, keep in mind that if the decedent is married (and how many multimillionaires die single), the exemption is effectively doubled; even the shoddiest estate planner knows how to maximize the use of the credits of both spouses and ensure that (at today’s rate) $4 million is transferred tax-free to the decendants.

Every time money is transferred, it is taxed. Sales, income, capital gains, what have you. I simply don’t see why the transfer of wealth at death should be treated any differently. I can get behind raising the exemption amount to $5 or even $10 million. But, without an estate tax, money will accumulate in the wealthiest families and just stay there, which is not a positive thing for society.

Anyway, I suppose I should phrase it as a challenge: show me that the estate tax has become a disincentive to becoming wealthy. Then, we can presume that it is a burden to society and should be repealed.

Am I the only one who has questions about this article? They sold a 183 acre farm for $137 million? 30 acres of that are being used to build a school, so the usable portion is 153 acres. $895K an acre? How is that economically viable for homesites?

Well, isn’t that the friggin point? If the estate is a pot of cash then it can be used to pay the taxes and nothing needs to be sold. No poor widdle widow and sad eyed orphans kicked off the family farm.

Gaithersberg is a suburb of Washington D.C., the homes around here aren’t built on one acre lots or even quarter acre lots. Around here we have million dollar McMansions built on something just a little bigger than the footprint of the house. You get a lot of houses per acre.

You realize, of course, that you are arguing against the right to inherit in general?

The minute you’re dead, everything you ever worked for is fair game. Well, OK - remind me that you think so when some relative of yours dies, and I will show up and start grabbing whatever I can carry.

Regards,
Shodan

Decidedly half-assed argument. Are you the government? Do you carry it’s imprimatur? And nobody has argued against inheritance. Simple reading comprehension would ascertain that. But maybe no one should hope for that much just yet. What was said was that an estate belongs to nobody since the individual who amassed it has become fertilizer. Y’wanna have your offspring get in on the action? Have at. And you could make arrangements to avoid inheritance tax entirely. As you well know.

And if you’re too stupid to make arrangements (which can be done for decidedly reasonable amounts) then maybe it’s best if your offspring (who carry your genes forward) don’t get your money. After all, based on the level of intelligence shown by the deceased, they would only piss it away on penny whistles and ribbon candy.

Princhester has. You even know that - you say as much here -

So I guess that part about reading comprehension was a two-edged sword.

And, since we are talking about reading comprehension, I don’t see any qualifications about making arrangements. You and Princhester both assert that, once someone is dead, no one owns his estate and it is up for grabs. Why would it make any difference what arrangements he wantedl? He’s dead, and it’s finders keepers.

But then again, we have already seen that you knew that. So you are either stupid, lying, or both.

And therefore, nobody should inherit from your estate either.

Okee-dokee - how are you feeling, by the way? Any chest pains, shortness of pants, like that?

:wink:

Regards,
Shodan

Really, now Shodan, intellectual dishonesty never looks good.

Qualifications? I believe that I mentioned them here:

Again, simple reading comprehension can go such a long way toward not making you look the twit. Perhaps you should look into it. As, for that matter, can simple reading, what with the above quote happening a full sentence before what you decided to quote. I know, I know, baby steps. But damnit! I expect you to be able to follow along. Perhaps I need to rethink your abilities.

Because the wishes of the dead matter. I would have expected an allegedly civilized individual such as yourself to know this. Again, my accursed expectations have overcome reality. Damn me thrice!

And my estate is in trust. A pretty standard and simple way to avoid those onerous taxes that will never affect you, nor I, nor (very probably) a single individual on these boards. But then you knew that, making you stupid or duplicitous or (most likely) both.

And any shortness in my pants is entirely between me and whosever I decide to show said shortness.

Unless your posting from beyond, your estate is not in a trust.

There are lots of naive individuals who get taken advantage of by disreputable lawyers and Insurance salesmen who churn out trusts, and particularly living trusts as a panacea against estate taxes.

Not to be a nitpicker or anything but “putting it into a trust” is a dangerously vague statement which (I’m sure unintentionally,) furthers this rather serious misconception.

Shodan your posts are hysterical (and i don’t mean very funny, I mean wild and illogical). I don’t think estates are utterly sacrosanct. I think there is at least one rational reason why they present a point at which to collect some tax. To leap from there to the suggestion that I am saying estates should be up for grabs for whoever wants them, or that I am against the idea of inheritance in general, is notably illogical. Indeed, given the latter part of my first post in this thread, in which I set out certain reasons in favour of inheritance, it would appear to be less illogical and more deliberately misleading.

Or alternatively, it may be that you are not being illogical or misleading, you just didn’t read very carefully.

Sure it is. Words, as I’m sure you’re well aware, often have more than one meaning.

Nonsense. Anyone who gets taken advantage of lacks the wherewithal to understand that they wouldn’t pay estate taxes. Y’know, because they don’t have a family farm to lose. Frightfully simple, really:

Those who might pay estate taxes have their ducks in a row and mostly avoid doing so.

Those who fixate on estate taxes mostly have nothing to fear, yet still act as if they are about to get reamed by the government based on nothing but pure ignorance.

Oh, horseshit. You desire nothing more than to nitpick. And making as simplified a statement as I did was done precisely because I don’t think it’s of any concern to anyone what the details of disposition are for me.

How do you do this?

Ask trusted friends and acquaintances for a good attorney, settle on said attorney and ask him to explain it. I fear that any explanation I could give would be less than adequate, and this is really something where you should sit in the same room as the individual explaining it. Then go back and ask questions afterward (because you will have questions) and just generally develop a rapport with this person. Another good source is a bank, since they have trust departments filled with people whose job is to explain this sort of thing.

If you feel comfortable with the explanation given, go with it. Of course, if your estate isn’t ginormous, then you wouldn’t have to worry about the inheritance tax anyway, but you knew that.

I know. Maybe it’s the way you do your hair.

Well, since reading comprehension is such a matter of concern for you (understandably so, given your difficulties with it), the qualifications I looked for in vain were to the notion that an estate belongs to nobody once the one who amassed it dies. No qualifications on that statement.

Well, I do, but apparently you don’t. Since you are now posting that the wishes of the dead matter, and earlier - without qualifications - you said that nobody owned an estate once the person who amassed it was dead. The right of disposal in accordance with one’s wishes is certainly part of ownership; ergo, you previously denied what you now assert. Apparently I’ve carried the point.

Hmm. So you assert that I knew or should have known the details of your estate, and everyone else’s on the Dope?

Your expectations of me are high indeed, and thus you are disappointed.

Mine of you are quite low. Thus I never am.

Regards,
Shodan

Oh, so you meant something entirely different that what was being discussed. So it’s not so much reading comprehension that you have trouble with, as it is simple, rudimentary understanding. The topic being addressed is, again, if you have so damned much money that the big, bad boogerman of the estate tax is going to bite you, then make arrangements to sidestep it. 'Tis frightfully simple, even for one so vexed by thought as yourself.

Now on to your point: Who do you maintain it belongs to?

Boychik, you aren’t capable of carrying my jock. Let alone something that requires heavy lifting like a point or an idea. You engaged in rank hyperbole to attempt vainly to make a point, and got called on it. Remember? When you posted this:

But I suppose that expecting an acknowledgement of your duplicitousness as well as some basic modicum of decency from you is simply out of the question. Not surprising, really.

I’m so dreadfully sorry, but I seem to have left my “Ignorant Twaddle to English” deciphering books at work, and I am at home. Pehaps you could try to say again what you’ve attempted above, only with less gibberish? I would be ever so grateful. As would those who are capable of speaking and understanding plain english.

All thanks in advance,
-Waste

“Estate” in the context you’re using it usually refers to the sum total of your assets to be dispersed upon death. While alive you have assets. When dead you have an estate. That’s the way the terms are used by estate planning specialists.

That’s a fallacious argument. In 2000 only 2% of estates were subject to Federal estate tax. In '05 that number is 1/2%. Contrary to your statement about the “family farm,” the biggest component to Federal Estate Tax susceptability is the small business owner or partner.

The tax laws that govern the disposition of large estates are **incredibly[/b[ complex and onerous. They change frequently (in fact they change substantially every year,) vary from state to state and are often contradictory. Would you like to talk about buy-sell agreements, IRS Sec 2031: basic Includability, Dower or Curtesy Interests, revocable interests, powers of appointment, state estate taxes, the taxability of qualified assets?

Do you have an IRA or a retirment plan with significant assets? Is that in the trust, too? Really? Are you taking advantage of NUA dispersals?

When you put your assets into trust did you pay attention to IRC sec.1015: Property transferred During Lifetime by Gift? Are you the trustee? Is your trust Revocable or do you maintain control over your assets thereby making them part of your estate?

Will your trust take advantage of the unlimited spousal deduction, lifetime gifts and unified credit? Shouldn’t you have a testamentary trust on death rather than placing it all in a trust and blowing your unified credit and spousal exemption?

What about life insurance? Is that “in the trust,” too? Shouldn’t that have it’s own trust? Who’s the beneficiary or owner? Will it be taxed? When you put everything in the trust did you lose the free step up in basis upon death granted to estates?

Do you really think it’s that simple? Shall I grab a case study for you and you can show me how simple it is?

Sadly, this is not true. More the exception. Chances are they had their ducks in a row 20 years ago and their estate changed and the laws changed and their husbands died, and now they are very old and afraid of being taken advantage of and maybe a little senile and they are not lawyers or accountants or estate planners, and are quite baffled by the whole process.

You generalize poorly. If your estate is over two million dollars you have something to fear from Federal estate taxes. You have something to fear with far less from state estate taxes in many states. You have something to fear if you have significant assets in a retirement plan even if they don’t even approach the unfied credit.

If you plan on between now and 2009 or so you have less to fear from Federal Estate taxes. If you plan on dying in 2010 you have nothing to fear. After that you have a lot to fear again, or the laws may change in the next two year (highly likely) and everything you thought you understood will be thrown out the window in which case you will have maybe a lot to fear or maybe nothing.

Do you plan on living more than 4 years?

Your plan may be great or it may suck. I don’t care. When you use yourself as an example that example is open for debate, especially when you make large and stupid generalizations such as, to paraphrase “It’s easy to avoid estate taxes just put it all in a trust.”

This is a common bit of ignorance in my line of work and a particularly dangerous one since what is generally being referred to is a living trust, which are typically churned out by insurance salesman or trust departments as a one-size-fits-all solution that can often do more damage to an estate plan than doing nothing.

Many people beleive they have made themselves immune to estate taxes by creating a living trust, but they’re not really paying attention. Typically what they are doing is really just trying to simplify probate and assure continuity of management in the case of incapacitation. In the case of many testamentary trusts set up by trust departments what is actually occuring is a nonrevocable testamentary trust that assures management fees without recourse to the beneficiary of said trust.

In my experience (and it is extensive,) about 75% of trusts that I see are innapropriate or not doing what the person who set it up thinks its doing. Don’t get me wrong. If you need a trust, it’s the greatest thing in the world when done right.

Done wrong, generically, or haphazardly it’s usually a severe impediment.

I’ll chime in because there have been a couple of posts that seem to indicate that the estate tax is easy to circumvent with proper planning. Its not, there are ways to minimize the estate tax to take advantage of every exclusion and deduction (living trusts can effectively double the $2 million dollar exclusion if you were going to leave everything to your spouse and they avoid costly probate expenses) but thats about it for simple estate planning.