Post #253,737
4/28/06 12:39:27 PM
4/28/06 12:41:48 PM
|

Look at it from the child's point of view
When someone dies and leaves something to me, I didn't have money and now I do. How is that not income for me?
If my father hires me and pays me money, he can't just say, "Oh, he's my son, this isn't really income." I'm an employee like any other. The government is nice enough to allow him to give me a certain amount of money is tax-free (though that's not supposed to be used in an employment situation), but if I'm getting a real salary, I have to pay real taxes on it.
If my father doesn't hire me but just gives me money, the same holds.
What is the difference in principle if the reason for my getting stuff is that he died?
Cheers, Ben
PS Edited to make it entirely from the child's point of view.
I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Edited by ben_tilly
April 28, 2006, 12:41:48 PM EDT
|
Post #253,741
4/28/06 1:03:30 PM
|

Difference is, when you get that income
by earning it, you pay 28%. If he gives you the house...you pay 50% and you got no cash. If that house is on Long Island...lets see you come up with $1Million to keep it.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,744
4/28/06 1:15:32 PM
|

So I don't keep the house, big deal.
Why do you think that I have an inherent right to have a nice house on Long Island? I'm going to sell that house, pay taxes, and I'll still have money left over. Given that I actively want to have undue concentrations of wealth broken up, I don't see this as a particularly bad outcome.
Anyways the rates aren't the key point here. I was addressing boxley's complaint that the government has no right at all to tax that money.
Cheers, Ben
I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)
|
Post #253,754
4/28/06 1:29:03 PM
|

Easy
Difference is, when you get that income by earning it, you pay 28%. If he gives you the house...you pay 50% and you got no cash. If that house is on Long Island...lets see you come up with $1Million to keep it. That is what trust funds are for. What you are saying there is a trivial variation of the "farming family forced to sell their farm because of taxes" story. But like the farming family story it doesn't hold up. It is like the "welfare mom driving a cadillac" story. Everybody repeats it, but nobody can prove it. It is essentialy an urban myth, but one intentionally drafted to make a political point. Jay
|
Post #253,769
4/28/06 2:04:28 PM
|

Since you've never had this happen to someone you know
then it must be urban myth.
What happens if you are living in that house, caring for your parent?
How "far fetched" is this example, really? Think about that now that real estate has become, by itself, something that will likely push estate values over that $1M exemption.
Business/home sales at Jersey shore are often the result of death in family. These are places that have been in the family for years...and cannot be kept because the family can't afford to pay 50% of "fair market" to keep it. This is NOT a bunch of rich, Rockefeller types...just a bunch of working class Philly folks that happened to get in when it was affordable and want their kids to have the same summertime fun that they had growing up. Sold, torn down, big developer builds condos and rents them to the rich people you're after...closing out one more family's shore vacation for the year.
Nope, to important to nab Bill Gate's fortune. If it happens to step on thousands of other necks in the process...oh well.
Yep, its so uncommon they have articles about it in [link|http://www.tahoedailytribune.com/article/20060329/NEWS/103290041|Lake Tahoe newspapers]. It must be urban myth. My guess is that your opinion might change the first time you are involved in settling an estate.
Point being, if you want to hit the top 1%...then you better make damned sure that the limits set are done so that you GET that crowd...and not a huge bunch of "collateral damage" at the same time.
I do NOT necessarily support the full repeal...however I find myself on that side of the fence simply because I don't think Washington can come up with a good compromise.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,774
4/28/06 2:10:27 PM
|

Compromise suggested
Raise the size of the estate that triggers it to $20 million next year, and then keep it indexed to inflation thereafter.
Good enough?
Cheers, Ben
I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)
|
Post #253,779
4/28/06 2:40:36 PM
|

Don't know about New Jersey
I don't know about New Jersey, but in PA the question is about family farms. And despite the story floating around for some time and several organizations looking for stories to publicize, nobody has ever found anybody that actually lost their farm due to estate taxes. I'll admit the problem is probably harder for other businesses then for farms, because in many cases even if you can't borrow the money or otherwise come up with it you can sell part of a farm. For a lot of other small businesses it would be an all or nothing prospect. [link|http://www.washingtonpost.com/wp-dyn/content/article/2005/07/23/AR2005072300741.html|Washington Post] The numbers that owed estate tax, the CBO found, were paltry, and the number without enough cash on hand to pay the bill even punier: In 2000, for example, just 1,659 farm estates had taxes due, of which 138 didn't report enough liquid assets to cover their tax liability. And note that isn't 138 that lost their farms, that is 138 nation wide that didn't have enough cash on hand to pay it immediately. I would agree that $1 million is too low a level for this tax to hit. Like most rates, the government set a fixed rate and doesn't adjust for inflation until enough people complain about it. Given what I have seen I would say $5 million or $10 million would be a better base line. Jay
|
Post #253,783
4/28/06 3:18:00 PM
|

Selling part of a farm
PERMANENTLY damages the farm itself. It becomes less of a viable venture.
Imric's Tips for Living
- Paranoia Is a Survival Trait
- Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
- Even though everyone is out to get you, it doesn't matter unless you let them win.
|
Nothing is as simple as it seems in the beginning, As hopeless as it seems in the middle, Or as finished as it seems in the end.
|
|
Post #253,787
4/28/06 4:29:46 PM
|

Lovely use of statistics
ONLY 1659 estates had taxes due and ONLY 138 were FORCED to borrow to pay taxes (9 months to come up with cash is the law).
So, on a venture that doesn't make alot to begin with, 138 last year were forced into MORE DEBT to maintain themselves.
All so you can "sock it" to the rich guys.
How about we throw in how many total farm estates there were so we could get a percentage of the total?
That might make that stat a little less comfortable for those trying to turn this into an urban myth. And all you have to do is look in the South Jersey papers to see the impact around here.
But, heck, its only a tradition we're squashing so we can "fairly tax" Bill Gates.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,794
4/28/06 5:25:24 PM
|

Figures where for 2000, current rate is lower.
The figures I mentioned where for 2000, the current tax rate is lower and the exemption higher.
The underlying report is here: [link|http://www.cbo.gov/ftpdocs/65xx/doc6512/07-06-EstateTax.pdf|CBO EstateTax.pdf]. I'm sure the figure your looking for is in there some place, I don't have time to read through it right now.
Jay
|
Post #253,798
4/28/06 6:34:26 PM
|

Re: Figures where for 2000, current rate is lower.
For farmers, business assets made up a much larger proportion of estates\ufffd wealth: 51 percent in 1999 and 43 percent in 2000. Liquid assets made up a smaller, but still substantial, share of their estates: just over 40 percent in both years. That smaller proportion of liquid assets suggests that estate taxes may be more likely to exceed liquid assets for estates of farmers, potentially requiring estates to liquidate other assets. However, farm estates are generally small, and the estate tax therefore consumes a smaller percentage of the gross estate (an average of 11 percent and a median of 9 percent in 2000). In fact, tax data show that in 1999, about 12 percent of farmers\ufffd estates that owed estate taxes faced a liability greater than their liquid assets. In 2000, the corresponding figure was 8 percent.
That situation is more pronounced for estates claiming the QFOBI deduction. Business assets made up at least 75 percent of those estates\ufffd wealth, on average.30 In addition, the average tax owed was a higher percentage of the gross estate for those estates than for estates in general (14 percent compared with 13 percent for all estates filing returns). As a consequence, one-third of estates claiming the QFOBI deduction and owing taxes in 2000 could not pay the estate tax out of their reported liquid assets. As before, the fact that liquid assets do not include some trusts means that that figure represents the maximum number of estates with insufficient liquid assets to pay the estate tax. So, of those farmers forced to file, about 10% of them were charged taxes IN EXCESS of liquid assets. And for small business, that number was 33%. Of course, soften the effect for the readers by saying "Maybe they had money socked away somewhere else to soften the blow". This is lifted straight out of the report. So, if you are a small business and you happen to be in the valuation range...1 in 3 shot puts you in the "forced sale" category.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,785
4/28/06 4:03:23 PM
|

Latest numbers and info from the IRS.
[link|http://www.irs.gov/businesses/small/article/0,,id=98968,00.html|Linky]: The annual exclusion for gifts is raised to $12,000 beginning in 2006
The applicable exclusion amount is increased to $2,000,000 for estates and remains at $1,000,000 for gifts
[...]
Most gifts are not subject to the gift tax and most estates are not subject to the estate tax. (Only about 2% of all estates are subject to the estate tax). For example, there is usually no tax if you make a gift to your spouse or a qualified charity or if your estate goes to your spouse or qualified charity at your death. If you make a gift to someone else, the gift tax does not apply until the value of the gifts you give that person is more than the annual exclusion for the year.
[...]
The person who receives your gift or your estate generally will not have to pay any gift tax or estate tax because of it. In addition, that person will not have to pay income tax on the value of the gift or inheritance received. NOTE: There are some technical applications for "Income in Respect of Decedent" under \ufffd691 that will have to be considered for income earned but not otherwise taxed prior to the date of death.
[...] IOW, you can give $12,000 per year to someone without any tax implications. You can, over your lifetime, give away $1M without any tax implications. Estates smaller than $2M at death are not taxed. The recipient is not taxed - the estate is. It's hard for me to get riled up about 2% of estates being subject to estate taxes. YMMV. The maximum estate tax rate is 47% [link|http://www.irs.gov/pub/irs-pdf/i706.pdf|Form 706 Instructions]. It's graduated from 18% (for taxable amounts over $10k), to 47% (for taxable amounts over $2M) - Table A. As Ben has said, we can argue about where the tax should kick in and how high the tax rate should be. But the tax serves a useful purpose and should be retained for large estates. Cheers, Scott.
|
Post #253,793
4/28/06 5:08:32 PM
|

Estate tax level is current wacky
The estate tax is currently going through a wacky cycle based on a bit that was part of Bush's tax reduction thing a few years ago. Every year until 2009 the tax rate goes down and the point where it kicks in goes up. And that is before getting into the real nitty gritty. There are a bunch of special exceptions and tax modifiers that only apply in certain cases.
Then in 2010 there is no estate tax at all. But then in 2011 it jumps back to where it was in 2002. Bush did that with several taxes so he could claim they wouldn't have huge long term effects.
You can see the general details on [link|http://en.wikipedia.org/wiki/Estate_tax|Wikipedia].
I fully expect something will be done at some point to make some sense of this.
Jay
|
Post #253,817
4/29/06 1:10:05 AM
|

Re: Since you've never had this happen to someone you know
"What happens if you are living in that house, caring for your parent? "
Eh? So dad dies and mom is still in the house? Doesn't apply. The tax doesn't kick in until she dies.
"Currrently, the tax applies only to taxable estates over $1.5 million, that is, estates over $1.5 million after debts, final expenses, charitable bequests and bequests to a spouse have been subtracted. Because an unlimited amount may be transferred tax free to a spouse, the tax is typically paid only once a generation, when the second spouse dies."
[link|http://www.blackbagops.net|Black Bag Operations Log]
[link|http://www.objectiveclips.com|Artificial Intelligence]
[link|http://www.badpage.info/seaside/html|Scrutinizer]
|
Post #253,827
4/29/06 11:12:14 AM
|

Try..
...so dad's already dead and mom dies. In the northeast and now in northern california...simple ownership of the house with no mortgage puts you over that limit with 0 cash. So, own the house and live on a pension...parent dies and the tax bill is 750k. You have 9 months to sell and pay...or penalties start.
The limit is too low in todays market by a MAJOR amount.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,832
4/29/06 11:55:15 AM
|

Nota bene
The exemption is such that it needs to be changed according to region; what is reasonable in one place (say Arkansas) might be ridiculously low in another (say LA).
The logical way to do that would be to calculate it by postal code or some such (er, zip code I guess for you guys).
That said, I think the inheritance tax is a Good Thing; while it may not seem ideologically reasonable, practical experience shows that it does what it's supposed to do and does it well (cf- Gilded Age).
--\n-------------------------------------------------------------------\n* Jack Troughton jake at consultron.ca *\n* [link|http://consultron.ca|http://consultron.ca] [link|irc://irc.ecomstation.ca|irc://irc.ecomstation.ca] *\n* Kingston Ontario Canada [link|news://news.consultron.ca|news://news.consultron.ca] *\n-------------------------------------------------------------------
|
Post #253,842
4/29/06 8:56:24 PM
|

All true, but that's a different problem
I like the European solution someone has mentioned here. Banks will finance a give property for the same amount no matter where it happens to be. This puts a serious brake on real estate speculation.
Taking some of the excessive valuation out of the market solves several major problems, and makes others more manageable. How to get there without screwing all the people currently sitting on monster mortgages is the hard part.
===
Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats]. [link|http://DocHope.com|http://DocHope.com]
|
Post #253,845
4/29/06 11:40:20 PM
|

Mortgage or move
that's life. My dad was in hock up to his ass when he died. I expected (and got) nothing. What of it? I didn't get his boat, his car, or his house. How am I hurt by the estate tax? None of it was mine, none of it was owned free and clear anyhow, and all of his savings was eaten by long term medical bills.
I don't have any sympathy for your hypotheticals. I'd like to see it ramped way up and used to pay for universal health care equal to what the congressmen get.
[link|http://www.blackbagops.net|Black Bag Operations Log]
[link|http://www.objectiveclips.com|Artificial Intelligence]
[link|http://www.badpage.info/seaside/html|Scrutinizer]
|
Post #253,863
4/30/06 10:55:11 AM
|

Interesting take
Alot more extreme than I would have expected of a father. This is not a dig...your view is clear...I'm just wondering if it may mellow as you and family age gracefully.
The small business thing is real...whether you want to recognize it or not. Restaurants are a huge example in Philly. Mom and Dad open...all the kids work it and when the last parent dies the kids have to close and sell the building to MAYBE make the tax payment because the limits are so low.
In these cases it goes against damned near every core value most people want to protect.
Again, I'm ok with docking half of Sam Walton. The leftover half would make all his kids very comfortable forever. I'm completely against the collateral damage that happens all the time...and at current levels is REALLY going to start showing now given real estate valuation.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]
|
Post #253,873
4/30/06 12:41:41 PM
|

So take Ben's solution.
Bump it up to $20mil, then index to inflation.
When somebody asks you to trade your freedoms for security, it isn't your security they're talking about.
|
Post #253,887
4/30/06 4:33:08 PM
|

I have no intention
of building a legacy for my kid to inherit. If she wants to make it, she'll make it on her own. I'll help her, sure. But I'm not busting my ass so she can sit on hers.
Typically, rich kids don't generally do as well as their parents. Observe Paris Hilton for instance. One might suspect that this may be partially caused by them figuring they'll inherit it all anyhow so why put in the effort.
There are mechanisms for transferring business interests that can avoid the inheritance tax. For instance, if the restaurant is truly a family business, then the kids can gradually take it over via vesting agreements.
I also agree that the threshold could be made - oh $5million to pull a number out of the air - to fix the edge cases you cite.
[link|http://www.blackbagops.net|Black Bag Operations Log]
[link|http://www.objectiveclips.com|Artificial Intelligence]
[link|http://www.badpage.info/seaside/html|Scrutinizer]
|
Post #253,748
4/28/06 1:24:16 PM
|

why should you have to pay %50 taxes because your
parents died instead of giving it to you. Doesnt sound very equitable to me. thanx, bill
Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free american and do not reflect the opinions of any person or company that I have had professional relations with in the past 50 years. meep
|
Post #253,770
4/28/06 2:06:20 PM
4/28/06 2:06:43 PM
|

simple, your parents had more money...that makes it fair.
If you push something hard enough, it will fall over. Fudd's First Law of Opposition
[link|mailto:bepatient@aol.com|BePatient]

Edited by bepatient
April 28, 2006, 02:06:43 PM EDT
|
Post #253,788
4/28/06 4:33:07 PM
4/28/06 10:01:38 PM
|

Does your father(s estate) get to write off the expense?
I'm not arguing or making a sarcastic point. But it seems if we're going to treat money I receive from my father as income, then it should be reported as an expense on his ledger, and deducted from taxable assets.
Hold on, I just realized how wrong that is. We always talk about taxing your assets when you die. What's really happening is we're taxing the person or people receiving the assets.
But that suggests a way to keep the money in the family: Incorporate a holding company, capitalized in the amount of your entire assets. Give complete control of that corporation to your heirs. They don't really own anything, the corporation does. They get to live in the properties of which they are the caretakers. They get to wield that financial influence as if it were theirs, but technically no one owns it. ... Something tells me I'm not the first one to think of this.
===
Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats]. [link|http://DocHope.com|http://DocHope.com]

Edited by drewk
April 28, 2006, 10:01:38 PM EDT
|
Post #253,809
4/28/06 10:27:14 PM
|

I know someone who did it.
Not as a company, but as a "Foundation". All people in the family are members. Foundation pays the bills.
|
Post #253,810
4/28/06 10:34:33 PM
|

I know multiple people who've done that
The first one who ever mentioned doing that, though, was a CFO. Coincidence? I bet not! :-)
Cheers, Ben
I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)
|
Post #253,815
4/28/06 11:04:37 PM
|

That's a little different, as I understand it.
[link|http://www.bizforward.com/wdc/issues/2002-09/money/foundation.shtml|Linky]: There are many financial instruments families can set up to handle chunks of charitable change, and the family foundation isn't the simplest of them. Creating a family foundation requires appointing a board of directors, holding meetings and taking minutes. The foundation has to file its own taxes and register as a 501c(3) nonprofit corporation. It doesn't have to have a full-time staff, just someone willing to watch the books. But depending on the mission, foundations can be manned by a small army. The hassle is enough to deter the faint-hearted, experts say. Financiers instead often will direct their philanthropically minded clients to what is called a donor-advice fund, a sort of charitable mutual fund. Donors contribute to a fund managed by a larger organization. When the donor wants to give to a charity, he or she asks the fund manager to cut a check. The fund manager has the power to veto such requests, because the Internal Revenue Service requires that donors not have total control over the money. But a veto rarely happens, and the donor-advice fund makes sense for anyone who has less than $1 million to put into such a fund, says Bessemer's Shelly.
Only once the available amount exceeds $1 million - and many experts prefer the number to be closer to $5 million or $10 million - do financiers consider creating a family foundation. At that point, the cost and hassle become minimal relative to the value and mission of the fund. Having a foundation allows much more choice over how much money is given and to whom. "Younger philanthropists are more interested in outcomes and being able to measure whether their money made a difference," Dakin says.
But it's the difference in degrees of control and the notion of legacy that appeal to people who start a family foundation with less than the recommended $1 million. "If you have an accountant, the accountant can set it up," Hundt says. "No one can cite the hassle factor as an excuse for not doing charity."
There are rules, of course. Donors can deduct cash gifts up to 30 percent of their adjusted gross income (AGI) each year. When donors contribute appreciated stock, they can write off the total value of the stock, even if they bought it for $2 a share and contributed it at $400 a share, up to the limits. And all assets given to a foundation in a will are fully deductible, helping to reduce federal estate taxes substantially. Foundations must give away at least 5 percent of the fund's value each year. I remember that last bit whenever I hear a glowing story about how much the [link|http://www.gatesfoundation.org/MediaCenter/FactSheet/default.htm|Bill & Melinda Gates Foundation] gives away. If you compare the annual giving with the endowment you see it is, you guessed it, 5%. A family foundation wouldn't be a good choice for those who just want to shield assets from the IRS, IMO (but note that I'm not a tax adviser, etc.). An [link|http://www.nolo.com/article.cfm/objectID/2D207FE3-B4EC-4599-BE0A3981C99F0D10/309/227/ART/|AB Trust] might be a better choice for upper-middle class families, but note the caveats. Also note that lots of people think that some sort of trust is always needed to avoid probate. At least in [link|http://www.fairfaxcounty.gov/courts/circuit/probate.htm|Virginia], probate isn't needed in many common cases even without a trust, e.g., if there's a valid a "self-proving" will and if all property is owned jointly with your spouse. Setting up the paperwork for my inlaws was just a few hundred dollars with a lawyer who specializes in such things. Cheers, Scott.
|
Post #253,907
4/30/06 7:10:52 PM
|

Its called a living trust came into being with the ERISA law
Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free american and do not reflect the opinions of any person or company that I have had professional relations with in the past 50 years. meep
|