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Old 11-11-2010, 04:51 PM   #181
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Originally Posted by SunsetSail View Post
I'm not sure to what part of my post your "maybe...maybe not" applies. Very rich people die without tax planning also. My point is just that if you do want to plan your estate not all the complexity is housed within the tax component of an estate plan. I think our only point of disagreement is the degree of complexity associated with the tax part which has a high level of subjectivity.


I don't mean to be disrespectful, but it sounds like your mom may have been given some poor advice, but maybe not because each situation is so fact specific.

An example to my point is when my wife became pregnant with our first child I had us both draft holographic wills naming guardians of the child. When our second child was born (presumably our last) we formalized an estate plan. However, we decided that we did not want to avoid probate because we specifically wanted a judge to review our estate to ensure our wishes were carried out. We also have specific instructions as to the administration of the funds in our estate and when our kids can have access. The decision limited our ability to plan for tax savings (although subsequent trustees have the authority for tax planning). Once our kids become adults we will change it to be more tax efficient, but for now our concern is that the guardianship of our kids is handled the way we want. The end result is a fairly complex estate plan with no tax planning.

There may be a society bias to think of estate planning as something that one does when the sun is setting on the horizon. At that point the tax planning typically does become a more important or at least more prominent component. However, it is my opinion that it is far more important to plan your estate when you have young kids in which case tax considerations are not necessarily as important.

I agree with what you are saying... that there are many people who do estate planning without regards to taxes... most of them do not have a tax problem because their estates just don't go that high... I am not trying to minimize all the planning that one should do for estate planning...

What I am trying to point out is that a lot of trusts and other legal entities are set up just to avoid the tax.... the 'owner' of the asset would not have given up even part of their ownership if there were no tax liability staring them in the face... because of the tax, people are doing things they do not want to do... the tax 'tail' is wagging the dog...

No, my mom did not get bad advice at the time... there were no plans to change the estate tax at the time... she was fast approaching a taxable estate... we wanted to lower her estate and not create a large tax liability... we did that... the things that have changed is the tax law... and my mom still going stong at 92 (hope she keeps going too...)... if she dies we do not have to pay any income tax on a large part of her estate as it will be converted to life insurance... (IOW, the growth in the annuity will never have been taxed)... that is significant in itself...
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Old 11-11-2010, 05:16 PM   #182
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Originally Posted by Texas Proud View Post
What I am trying to point out is that a lot of trusts and other legal entities are set up just to avoid the tax.... the 'owner' of the asset would not have given up even part of their ownership if there were no tax liability staring them in the face... because of the tax, people are doing things they do not want to do... the tax 'tail' is wagging the dog...
I'll concede the point - you will eliminate measurable complexity and some economically unproductive activity with no estate tax. You will have to get the Texas Congresspersons to repeal the tax now without a sunset provision. We won't get any help from the California delegation, so I've done all I can.

Are we repealing the gift tax as well?
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Old 11-11-2010, 05:27 PM   #183
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. . . I've done all I can.
As have I.

As this is a topic where none of the participants are likely to convince each other of their position, I think that I will sign off the discussion. At a point we become tiresome.

WS, I caught your post before the delete. Clearly we have very different views of how the world works and should work. But you knew that.
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Old 11-11-2010, 08:26 PM   #184
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The only thing “lost” here is the right to enjoy tax free unearned income for select individuals who in no way contributed to the accumulation effort.
Speaking of "the right to enjoy tax free unearned income," we need to get back to the question of life insurance. Both estate dollars and life insurance dollars are unearned income to the recipient. Should they be taxed the same?

I would think so. No matter how much the life insurance industry lobbiests pay the Congresscritters, I shouldn't be able to avoid estate taxes by converting assets to life insurance. JMHO.

I wonder what you think?
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Old 11-11-2010, 08:51 PM   #185
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The two richest (Gates and Buffet) have been quite supportive of the estate tax, do not appear to have engaged in any evasive tactics and have chosen to use their assets for the benefit of humanity.
I suppose this depends on how you look at the situation. I see two rich men who would rather give their money to charity while alive and enjoy the positive recognition and elevation of their public persona than have the money be transfered to the gov't via estate taxes at their death. If they supported estate taxes, then their action should be to retain their estates, do no legal mumbly-jumbly stuff, and turn over about 50% of their wealth to the gov't at their demise. I admire their charitable giving, but their giving is in no way an indication of their support of the estate tax. Quite the opposite.

In any case, the super rich are a different breed. They can give away 95% or more of their wealth and still leave their heirs well fixed by common standards. It's estates in the $2, $3 or $4 million range (with a $1 million exemption) that are really impacted.

It would make such a tiny difference in the amount of tax revenue collected if the feds moved the exemption to the $5 or $10 million range which would almost completely eliminate the issues of family businesses, etc. I don't see why they don't do that. The uber-wealthy like Buffet or Gates can do as they wish, still leaving their heirs in the top 0.01%, the "small time rich guys" would be exempted and all the bickering would go away.
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Old 11-11-2010, 09:23 PM   #186
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I may have mentioned this idea in the past, but I was curious what people (especially an Attorney like Martha) thought about the basic idea of eliminating the estate tax, but instead taxing inheritances at the long-term capital gains rate.

To minimize paper work and allow most families to pass on modest estates tax free and make a couple of changes. I'd flip the current (except for 2010) unified lifetime gift exclusion and annual gift limits. Instead of taxing the person who gives more than $13,000 per year (indexed for inflation) or more than ~a couple million over their life, you can give away as much as you want but the recipient is taxed. In particular you can receive 13K a year in gifts /bequeaths from all sources in years (for instance due to inheritance) that you exceed that amount it applies to your lifetime exclusion. When you exceed that amount (I think a number like $2-$3 million is in the right ballpark) over your lifetime the gift is treated as long-term capital gain.

One of the benefits it would allow the Warren Buffetts (or much more likely the medium business owner with 50 or 100 employees) to leave their firm to their employees with no or minimal taxes. It would probably raise about the same revenue as the current system with 3.5 million dollar exemption but all of the fancy pass-thru trust, weird life insurance trusts etc.

Are there any obvious tax dodges I am missing?
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Old 11-12-2010, 08:08 AM   #187
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Speaking of "the right to enjoy tax free unearned income," we need to get back to the question of life insurance. Both estate dollars and life insurance dollars are unearned income to the recipient. Should they be taxed the same?

I would think so. No matter how much the life insurance industry lobbiests pay the Congresscritters, I shouldn't be able to avoid estate taxes by converting assets to life insurance. JMHO.

I wonder what you think?
Separate life insurance into two parts. The one that is reimbursement for a loss should be tax free, like other types of risk insurance. Insurance payments that do no compensate for loss such as your example above - would be taxable income.

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I suppose this depends on how you look at the situation. I see two rich men who would rather give their money to charity while alive and enjoy the positive recognition and elevation of their public persona than have the money be transfered to the gov't via estate taxes at their death. If they supported estate taxes, then their action should be to retain their estates, do no legal mumbly-jumbly stuff, and turn over about 50% of their wealth to the gov't at their demise. I admire their charitable giving, but their giving is in no way an indication of their support of the estate tax. Quite the opposite.

In any case, the super rich are a different breed. They can give away 95% or more of their wealth and still leave their heirs well fixed by common standards. It's estates in the $2, $3 or $4 million range (with a $1 million exemption) that are really impacted.

It would make such a tiny difference in the amount of tax revenue collected if the feds moved the exemption to the $5 or $10 million range which would almost completely eliminate the issues of family businesses, etc. I don't see why they don't do that. The uber-wealthy like Buffet or Gates can do as they wish, still leaving their heirs in the top 0.01%, the "small time rich guys" would be exempted and all the bickering would go away.
Agree with the $5 to $10M suggestion.

As for Gates and Buffet, they speak only for themselves. I mentioned them just to respond to some posts that overgeneralize about what others think, feel or how they act.

Cheers...
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Old 11-12-2010, 09:44 AM   #188
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...all the bickering would go away.
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Old 12-12-2010, 06:36 PM   #189
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Unrealized Capital Gains, IRA's

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1. I already paid taxes on that money. Suddenly it becomes taxable again when I die?

2. It costs me plenty, $ and time, to tax plan and set up trusts just so DW and I can each leave an estate instead of having it combined into one estate for the surviving spouse, with one estate tax exemption applied.

3. It incentivizes me to spend the money before I die, rather than saving it in case I, or my family, need it late in life.

I have no problem leaving the tax basis of everything where it is, without the normal step-up. Although that does make it easier for the survivors. But this tax is just another money grab and a social wealth transfer.
I think the estate tax is a mistake, evidently costing the economy more than the government's revenues from it. Somewhere I read an estimate that enforcement of the estate tax costs 75% of those revenues. I would be glad to see the "death tax" abolished completely. I cannot work up any envy of the rich or their heirs. Still, the argument that tax has already been collected on a decedent's assets is not sound. My estate includes unrealized capital gains (including even gains on my Nevada house, but mostly in my stock market assets) and tax-deferred assets in my traditional IRA. That money has not been taxed. It is a non-trivial portion of my estate and, so far as I know, of many American estates. So, let me gently suggest that people not hurt a good cause with a fallacious argument.

Some people argued in support of the estate tax that it is the only tax on wealth. That is easily proven wrong by anyone with a property tax bill handy. If they mean that the estate tax is the only federal tax on wealth, let them say so explicitly so all us property tax payers can make our point. Further, inflation functions as a tax and reaches directly into tax-deferred accounts.

Some have argued that only a small percentage of estates owe any estate tax. The estate tax in fact influences the decisions of many people, living people, who make their personal plans with estate taxes in mind. Someone may retire early because of that tax. Then the additional people he would have hired also suffer from this tax.

Another man argued that the estate tax is not a significant problem because people can buy life insurance to pay that tax. He seems to think that the Tooth Fairy will pay the large premiums on those policies.
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