Buffett on estate taxes

[Nords]

Buffett backs U.S. estate tax, decries wealth gap

I was reading this article the other day and thinking "Holy cow, no wonder the guy tap-dances to work".

First, by pledging to the Gates Foundation he's essentially found a way to divest himself of his fortune so that he "only" has a few billion left to deal with for the rest of his life. (Anyway I don't think he was worrying that Astrid or the kids would put him in a Medicaid factory.) For the rest of us, this sense of accomplishment is similar to that felt by gazing back upon a pristine yard after spending several hours raking up all the fallen leaves. Green waste indeed.

Second, he's at a point in his life where he can bend the policy-making ear of just about any politician, Republican or Democrat, including several ex-presidents and probably a number of future ones. It must be extremely ego-gratifying to receive this validation at a time in life when elders are concerned about their legacy.

Third, he's sticking up for the little guy. He's advocating sock-it-to-the-rich estate taxes that he's happy to pay while also trying to help those with smaller fortunes avoid having to sell the farm to pay the estate tax.

At this point in my fond reverie, my sense of cynicism kicked in. It occurred to me that many of today's Berkshire Hathaway companies joined the club precisely to solve their estate-planning problems. When an entrepreneur spends decades building his business and achieves a net worth of hundreds of millions of dollars, it's extremely difficult to structure the succession to avoid having to pay a crippling estate tax-- especially if the entrepreneur wants to retain control. Berkshire Hathaway, though, stands ready with all the cash (or BRK stock if necessary) needed to help these people sell their cakes and eat them too.

No wonder he advocates a strong estate tax. Congress is considering helping Buffett drive dozens of entrepreneur's companies straight into Berkshire's fold... decades from now, Howard Buffett and all the rest of Buffett's successors will be very happy that Warren advocated such a strong estate tax.

[Martha]

I'm not so cynical. I think he is just a good decent guy.

There are ways to do succession planning to deal with estate taxes. Big life insurance policies. Paying the taxes over time or financing the taxes with a loan. Gifting of non-voting stock helps with the control issue as well as keeps valuation of the gifted stock down.

[RetireeRobert]

Interesting what Buffet is up to on estate taxes---but what has this got to do with "Stock Picking"? Maybe "Other"?

[clifp]

I am not that cynical either. However, there is little doubt that existance of an estate tax has made an being acquired by Berkshire more desirable for many business. Of course it doesn't explain a purchase like Iscar (not sure if Israel has an estate tax).

Still I think the reason that Buffett is in favor of estate taxes is the same reason I am.

If my lifetime share of federal taxes is 3 zillion dollars. I'd much rather pay 2 zillion when am alive and one zillion after I die than all 3 zillion when I am living.

[kcowan]

Nords I am impressed with your BRK spin on it. However, I think back to the time he gave each of his kids $10,000 and then offered to manage it for them. None accepted the offer. They took the money and blew it. I think that might have colored his lack of desire to pass along all $47B to them. Plus it forced him to look at options like The Gates Foundation to do good things and create a legacy. There is nothing wrong with that. We don't need any more Paris Hiltons...

[ERD50]

Quote:

Originally Posted by kcowan I think that might have colored his lack of desire to pass along all $47B to them. Plus it forced him to look at options like The Gates Foundation to do good things and create a legacy.

But in a way, didn't he effectively 'give' a ton of money to his kids? Aren't they named administrators in the foundations, with a cushy salary (I couldn't find the details in a quick google)? Since they got that 'job' because of paternity and not through working their way to it, it is a kind of 'inheritance'.

I'm not criticizing it, it's certainly a far better thing to do then raise totally spoiled brats, and it should be his money to do as he sees fit anyway. I just don't buy it that this set-up is 100% altruistic.

-ERD50

[Nords]

Quote:

Originally Posted by Martha I'm not so cynical. I think he is just a good decent guy. There are ways to do succession planning to deal with estate taxes. Big life insurance policies. Paying the taxes over time or financing the taxes with a loan. Gifting of non-voting stock helps with the control issue as well as keeps valuation of the gifted stock down.

True. I'm not accusing Buffett of hypocrisy or malfeasance, but it occurs to me that he very much has more motivation than simple altruism. Maybe I'm trying too hard to avoid being typecast as a Berkshire cheerleader.

I have to point out that a pile of Berkshire cash is a lot simpler to deal with than the typical succession- & estate-planning processes.

Quote:

Originally Posted by kcowan Nords I am impressed with your BRK spin on it. However, I think back to the time he gave each of his kids $10,000 and then offered to manage it for them. None accepted the offer. They took the money and blew it. I think that might have colored his lack of desire to pass along all $47B to them. Plus it forced him to look at options like The Gates Foundation to do good things and create a legacy. There is nothing wrong with that. We don't need any more Paris Hiltons...

Lowenstein's biography gives the impression that Buffett didn't get along very well with his parents, for a variety of reasons that must've seemed important at the time. We've had a lot of affluenza discussions in our household and I agree with his "enough to do anything, not enough to do nothing" philosophy.

Quote:

Originally Posted by ERD50 But in a way, didn't he effectively 'give' a ton of money to his kids? Aren't they named administrators in the foundations, with a cushy salary (I couldn't find the details in a quick google)? Since they got that 'job' because of paternity and not through working their way to it, it is a kind of 'inheritance'.

Which "he" are you referring to?

Buffett's donation letter to the Gates Foundation was accompanied by donation letters to his first wife's foundation and each of his kid's foundations.

Howard is on the Berkshire board (along with fairly experienced executives like Gates, Murphy, & Scott). One author, Robert P. Miles, opines that Howard will rise to Chairmanship to preserve the family culture.

Here's a profile of the rest of the family's charity activities:
Buffett Children Emerge as a Force in Charity - New York Times

Buffett also has at least one sister (who may or may not still be alive) running her own foundation.

I'm not so sure that running a family (or one's own) foundation is the cushy job we all hope it is. (Yes, I personally know people who are doing this.) The IRS takes an extremely dim view of people who are too involved in running their own foundations for any sort of compensation, especially if that includes reimbursement for travel & entertainment, and most of these heirs don't have the inclination or the skills to game the system. I suspect that we think it's a cushy job because they're rich enough to spend their own money to support doing something that they love. For them it's a lot easier to whip out their personal AMEX Black card than to have to deal with foundation rules & reimbursement procedures. To them it's just another easy-to-use power tool, of which they have a nearly unlimited supply.

[ERD50]

Quote:

Originally Posted by Nords I'm not so sure that running a family (or one's own) foundation is the cushy job we all hope it is.

OK, 'cushy' was a bit cynical. I did see one interview with the kids, and they seemed like decent people that are going to work hard to do the right thing with the foundation. I don't mean to come across as 'sour grapes'.

I guess my point is that as long as they perform reasonably well, they are probably pretty well set for life. So beyond that, how much more would Warren (or anyone) need/want to do for their family? It just seems too easy for Warren to say he supports the estate tax. No reason for him not to. I think that was part of your view also?

-ERD50

[youbet]

It's interesting to see what the super rich like Gates and Buffett do with their wealth, especially in the area of legacies. But it's all fantasey land since there are no harsh consequences, the heirs are still left extremely well off by all standards. The folks I'm more interested in are the barely-rich such as entrepreneurs and farmers, or even RE types, folks with a net worth of, say, $3-$4 mil or so.

When Buffett supports estate (death) taxes for the super rich, I applaud him. I'm not so sure I support the barely-rich getting hit hard, if that's where he's going.

One plan that appeals to me is having my residual estate passing tax free to my heirs, but your estate being taxed to support public spending.

[VaCollector]

Quote:

Originally Posted by youbet The folks I'm more interested in are the barely-rich such as entrepreneurs and farmers, or even RE types, folks with a net worth of, say, $3-$4 mil or so. When Buffett supports estate (death) taxes for the super rich, I applaud him. I'm not so sure I support the barely-rich getting hit hard, if that's where he's going. One plan that appeals to me is having my residual estate passing tax free to my heirs, but your estate being taxed to support public spending.

Seems that most of us would support estate taxes for the super rich ~ as long as WE are not considered to be part of that group....in other words - leave MY money alone!!

[kcowan]

Isn't the limit to be reverted to in 2011 $600k? I am pretty sure that will catch a few ERs if they manage their portfolios well. Especailly if not indexed for realistic inflation.

[ERD50]

Quote:

Originally Posted by VaCollector Seems that most of us would support estate taxes for the super rich ~ as long as WE are not considered to be part of that group....in other words - leave MY money alone!!

Yep, and on another thread about the environment - we have the NIMBYs (Not In My Back Yard).

So the wealth-distribution equivalent is NWMMYD ( Not With My Money You Don't!)?

Or YANTMM (You Are Not Touching My Money!)?

-ERD50

[youbet]

Quote:

Originally Posted by VaCollector Seems that most of us would support estate taxes for the super rich ~ as long as WE are not considered to be part of that group....in other words - leave MY money alone!!

Yes Sir! I support that plan!

[RetireeRobert]

Just read today about Buffet, he apparently horned into A-Rod's business (baseball fame) and advised A-Rod to "go-around" his agent, and talk to Yankees about a contract.

What is Buffet doing crowding into baseball players' contract business? A-Rod's agent must be just fried.

Maybe Buffet's head is starting to sit a little crooked.

[TickTock]

I just don't see why a person dying should entitle the government to any portion of the estate, regardless of the amount - the earnings to make the estate were taxed, and the future earning of the estate will be taxed. What justification is there to tax the estate simply because it transfers from one person to another?

[RetireeRobert]

Quote:

Originally Posted by TickTock I just don't see why a person dying should entitle the government to any portion of the estate, regardless of the amount - the earnings to make the estate were taxed, and the future earning of the estate will be taxed. What justification is there to tax the estate simply because it transfers from one person to another?

None as far as I'm concerned.

[clifp]

Quote:

Originally Posted by TickTock I just don't see why a person dying should entitle the government to any portion of the estate, regardless of the amount - the earnings to make the estate were taxed, and the future earning of the estate will be taxed. What justification is there to tax the estate simply because it transfers from one person to another?

One can make that same arguement "why is the government intitled to ...." virtually any revenue source (sales, income, excise, estate tax, user fees etc).

The government needs X dollars to operate and it has to get the money from somewhere. Of all the taxes I pay the one I am going to be the least concerned about paying will be the estate tax, cause after all I'll be dead and can't use the money.

Imagine a mythical country with a super simple tax system.
When a kid turns a 18 he gets two things a lottery ticket and bill.
The bill is very simple it says every year in order to enjoy the benefits of this country you owes us $5,000. We don't care how you pay us but if you don't pay we will take your money, ship you out of the country, and shoot you if you try to come back.
Most lottery tickets are worthless but a small percentage are worth $10 million. The government gives these lucky winner a seperate bill.
They have two options
Option 1 is pay $200K/year
Option 2 is to pay only $100K/year but when they die the Government takes 1/2 of their estate.
Same draconic rules for non payment.

I suspect that most people would choose option 2.

The estate tax is the catch very wealthy people pay for only paying 17 or 18% of the income like Warren Buffett.

[RetireeRobert]

Quote:

Originally Posted by clifp Of all the taxes I pay the one I am going to be the least concerned about paying will be the estate tax, cause after all I'll be dead and can't use the money.

You have no family? I would worry about my family and their financial future, if the government takes a big chunk of my wealth "from them" just because I died.

[Martha]

Quote:

Originally Posted by RetireeRobert You have no family? I would worry about my family and their financial future, if the government takes a big chunk of my wealth "from them" just because I died.

Your spouse can get your estate tax free. It is only when it goes to the next generation or someone other than a charity where there is a tax.

[Dawg52]

Quote:

Originally Posted by kcowan Isn't the limit to be reverted to in 2011 $600k? I am pretty sure that will catch a few ERs if they manage their portfolios well. Especailly if not indexed for realistic inflation.

Looks like 1 million, but that will still catch quite a few estates.

Taxes: Death and taxes - Estate tax laws.