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]
|
