Estate Lunacy

insert ad for my law firm here.

 

I am not close to $1 million but if I were to die on company business, all of a sudden my wife's assets zoom past that mark, which is why I don't like taking her on company trips .

 

Here is what I am for:

1. Eliminate the estate tax in lieu of a recipient tax.
2. Don't have any loopholes in the recipient tax so that tax lawyers and estate/financial planners can set things up to avoid paying the tax. In other words any non-charitable entity (be it a person, trust or investment) has to pay some sort of tax on the money it receives.
3. Anyone who has "assets - liabilities" at $1,000,000+ should seek estate planning advice.

 

That was my greatest fear

7.9 million households with $1M net worth / 111 million households total

=

7.1% of households have $1+M net worth.

That is a number way higher than I expected. That same article said that in 2001 there were 9.8 million households with $1M net worth. I suspect that that 30% fall had alot to do with the stock market drop. It would not surprise me that most of 7.1% households have a net worth closer to one million than four million, given the 0.5% of households that get stuck with estate taxes.

 

I was surprised by that number as well. I agree (suspect) that most of that 7.8 million fall closer to 1 million than 4, but anytime you cross that 7 figure threshhold, you really, really need to pay attention to estate planning.

I wonder how many households truly understand/appreciate their net worth. When you start looking at insurance policies (as well as kickers for dying on company trips), 401Ks, real estate, potential inheritance, etc. there are a lot of folks worth more than they think.

 

that's exactly right.

also...get hit and killed by a McDonald's truck and see what that does to the size of your estate!

 

I'm coming late to this thread and am not up on the arcana of tax code as many here.

Just to make a few philosophical points of why I support the estate tax.
First this whole idea that you are being double taxed is wrong. You were being taxed while you were alive true but when the estate tax comes into play you're dead. Unless you believe like the Ferengi on Star Trek that you actually live on in your capital you're not being double taxed.

Secondly I don't believe that the idea of handing on unfettered wealth from generation to generation is a a good idea. If we look at countless societies like China and feudal Europe you quickly develop a useless aristocracy that contributes llittle to society other than living off of inhereted wealth. While certainly every parent wishes to leave their children a good life when they passed on if your kids can't have a good life off of a $1 mil. dollar inheritance then, pardon me for being blunt, you haven't been that good of a parent. Yes its great to hand your children a lot of capital but isn't it better to have handed them values and knowledge that will allow them to succeed on their own without having to be dependent on your money?

Since Bobrek threw out an example I will give an example. My grandfather on my dad's side grew up poor in Southern China and fled to Hong Kong with practically nothing, when he died he left my Dad and his brothers pretty much nothing. My dad worked hard went to college and came to the US where he became a professor. My dad taught me the value of hardwork and knowledge and I started a company, and while far from rich, make an OK living and have the possibility of being rich. The point here is that the estate tax had absolutely nothing to do with the success of my family. My Grandfather left my dad nothing, my dad is still alive but even if (God forbid) he died tomorrow and left me nothing I wouldn't be destitute because he's already left me something of great value. If my dad had squirrelled away enough money to be affected by the estate tax while that would be nice I would have no problem paying that since I'm not depending on that to live off of.

While some of you might still say even if I don't need my dad's estate to live its still not fair that an estate tax has to be paid since its my dad's money to do with as he chooses. Well again he is dead and has no say but besides that its unlikely that he would've had the opportunity to make that money without the benefits that the US allowed him to have. My dad as a researcher many of his grants were government grants, the scientific and educational infrastructure that allowed my dad to learn and teach had a lot of government capital invested in them, and since I went to mostly public school and public universities growing up my dad's son also benefitted greatly from government funding. Its very possible that my dad couldn't have built an estate big enough to be subject to the estate tax without benefitting greatly from the government. If the government decides that some of that estate upon my dad's death they should collect on that before its handed to me I don't see anything wrong with that.

So IMO the estate tax should not only be kept it is also one of the fairest taxes with the most benefit to society. Its not double taxing the individual since they're dead and its keeping some check on the complete unfettered transfer of inherited wealth that in the long run isn't a good thing for society.

 

It is not 0.5% of all households who are subject to the estate tax. The number is the 10-12,000 estates subject to it compared to the 2.5 million americans who die each year.

 

I hate it when S-Chang catches more flies with honey than I do with vinegar. b*stard!

 

First off, your habit of not bothering to read the entire thread and then popping in with comments that have been rehashed many times over has gotten old. If you have the time to type up a Macbeth-length post, you can read the thread.

Second, the idea that the government deserves your money when you die instead of your kids is borderline communist. Saying that the kids would be better off without the money is absurd. It's funny how people resent others with money.

 

O.K., I'll throw this out there for the pro-estate tax crowd. Keeping in mind that the estate tax exemption is currently $1,000,000 and for argument's sake, we'll assume that the person dies in an unmarried state since it is rare when both parties die together, consider the following:

1. Do you think the $1,000,000 exemption is too low? As per the Money magazine article this has the potential to impact 7%+ of American households (granted, not all at once - unless those darned Iranians nuke us).

2. Would you support legislation to keep the estate tax as is, yet raise the personal exemption? If so, what would be a reasonable amount? Obviously the million dollar exemption is nothing to Buffet, Gates, Walton, Hilton, etc, but it is quite a bit for the vast majority of the potential impactees.

3. Do you think the 46% rate on every thing above the million dollar exemption is too high? What would you consider a reasonable rate - perhaps the current top ordinary income rate, perhaps the 15% capital gains rate?

4. Do you think if the exemption was higher (let's say $10,000,000) and/or the tax rate lower (let's say 25%) this would tend to keep this issue more on the back burner?

 

My post isn't nearly as long as the previous 6 pages and it only took me about 10 minutes to write. I'm verbose is that a crime?

As I said in the thread too I was making philosophical points whereas from what I saw skimming the thread most of the points seemed to be on the tax law in particular.

I never said the government deserves all of it but some of it and neither did I say the kids would be better off. As I said in my own example it would be nice to have a million in inheritance but not needed. I'm making a values argument. I believe that if you bring up your children right and teach them the value of hardwork and knowledge that is far better than leaving them money. Money is good and certainly helps but if you think your kids aren't going to survive or be left destitute without it I don't think you've done a good job of being a parent. Do you disagree?

 

$1,000,000 exemption is per person. This likely translates into a $2,000,000 exemption is per couple.

As you and I guesstimated earlier, a fair chunk of the 7+% of American households are closer to $1,000,000 than $4,000,000. For those above the $2,000,000 mark, let's guesstimate a profile. These households know how to handle money. They know how the estate tax system works and how it is gamed. They will plan accordingly, if necessary.

But lets take one more fact into consideration, the average household will spend 20 years in retirement (if you are 55 you are likely to live until you are 85; this implies if you make it 65 and retire, you will likely see 20+ years of retirement.) 20 years is a long time to go without income from a job. These lifelong savers are going to have to dip into their principal. That is their plan. Given this, couples that retire with $2,000,000 will likely spend their way beyond the exemption level. This may go a ways to explain the discrepancy between the the number of millionaires and the number of people who pay estate taxes.

 

No. For 99.5% of us, it is a back burner issue. We won't pay. We might have to plan, but we won't pay. The top 0.5% who pay may very well be the super rich. They have the time, the money, and the interest to pursue this until there is no estate tax.

 

NoWorries

But do you get to "carry" the additional $1 million dollar exemption once your spouse is deceased? I don't know exactly how estates work with respect to that. Assume a $5 million dollar estate. Both parties die at the same time. Estate tax would be paid on $3 million. Now assume a spouse dies and everything is left to the other spouse. At this time - no estate tax. Is the exemption for the surviving spouse now essentially $2 million?

In addition, while folks will live off their retirement income, that does not change the fact that once they hit the exemption line, they are now subject to the estate tax - whether or not they ever have to pay it and it is prudent to do some planning to avoid the potential estate tax.

 

"at the same time" is a legal impossibility. Most well written wills state that if a couple dies in a car crash "at the same time", the wills be executed in a given order, like the husband followed by the wife.

Yes. The deceased spouse's will xfers his/her exemption limit ($2M) into a bypass trust. The bypass trust has to be setup so that it is not a transparent entity that only benefits the surviving spouse, since the law will not see that the xfer had any effect (ie the monies might as well been xfer directly to the surviving spouse.) The bypass trust usually is setup to benefit the deceased's family.

The remaining $3M is xfer directly to surviving spouse, no strings attached. If the surviving spouse was not the money manager / invester of the household (not uncommon), martial trust can be setup to manage the financial affairs but the monies must be controlled by the surviving spouse. Prenups and previous marriages can complicate matters though.

If you got big bucks, it is always prudent to see that after you die the estate monies are used as you wish, under the constraint of estate taxes.

 

It seems to me that those who adamantly oppose this cut really aren't dealing with the issues of those in favor of the cut. Whether its fair to tax someone's earnings twice for example is being met with replies like 'taxes aren't fair' etc. At the same the opponents of the cut justify their position in terms of what programs they feel are needed (help the poor etc). I think that one doesn't disprove the other - this particular tax can be bad or unfair or undesirable AND we could need to fund particular programs. Would the opponents to the cuts still be opponents if other taxes were raised?

 

The double taxation argument should be met with As has been pointed out before, many times, to the same folks in older versions of this thread: no money is double-taxed; it's not triple-taxed --- it's infinitely taxed; each dollar in your wallet (unless you're grabbing bills fresh off the printing press) has been taxed an infinite number of times before it got to your wallet. Taxes aren't levied on money or paper or sums, they are levied on the value created by a transaction. Inheriting money is a transaction, which creates value, hence the new value created is taxed. That's the fundamental principle behind our taxation system.