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Old 11-09-2010, 10:03 AM   #101
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After looking through / reading 87 posts in this thread, I find the whole conversation somewhat humorous. Those of us with estates large enough to suffer an adverse death tax will turn to our accounting and legal advisers to find ways to avoid or minimize the impact. To us the bigger "cost" of the government's desire to invoke an estate tax is paying our advisers to identify ways to avoid the tax. Believe me, if you hire the right firm(s), there are many ways to avoid (and in some cases, safe ways to evade) the estate tax. The irony of the estate tax is that the more the government tries to take the money from the rich, the more the rich will spend on strategies to protect their assets, because we can afford the cost - it's simple economics. Will I tell you how I'm avoiding estate taxes? Hell no, I've paid too much for this information.
There are a lot of people who can not avoid the tax... and 'evade' is against the law... you can go to jail if you do that...


It seems that people who do not know taxes think that there is a way that the 'rich' can avoid all taxes if they hire the right lawyer or accountant.... that is just wrong...

Back when I did taxes (a LONG time ago)... we had a few clients who paid $10 MILLION per qtr for estimated tax payments... they paid us quite well, but there was just no way we could eliminate that kind of tax liability...

As I have mentioned before, if you are really really rich, you just get your congress critter to put in a loophole just for you... the Gallo family did it...
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Old 11-09-2010, 10:11 AM   #102
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I would much prefer that the unrealized gains on assets be taxed... or that the basis of an asset is passed on the the receipient...

That eliminates the estate tax... that eliminates all the money spent trying to avoid it... that eliminates all these trust that the gvmt has to deal with trying to avoid it... that eliminates having untaxed gains...

And I think it is a pretty big net plus to society...

If the family wants to continue the farm (this is if basis is passed)... they can... but if all the kids want to sell etc. they pay their cap gains tax...

At the end of the day I bet that the gvmt makes more money this way than they do with the estate tax... because it hits ALL estates for all untaxed gains....
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Old 11-09-2010, 10:16 AM   #103
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If our lawyer-Congress critter folks really believe in the estate tax, why do they provide work-arounds that are available if you pay big bux to law firms?
I think they don't "provide work-arounds" so much as fight rear guard actions against people who are smarter and more focused on this than they are.

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Old 11-09-2010, 10:25 AM   #104
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It creates a problem for workers employed by businesses that are taken apart to pay this tax. I don't have numbers for their population, and I doubt anyone does.
I question this clearly speculative statement. Even in 2004, when the credit was 1.4 million, the percentage paid in tax just is not that high.

Of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent. These were taxable estates valued at less than $2 million.Very large estates valued at over $20 million paid at an average effective rate of just over 22 percent.
FactCheck.org: Estate Tax Malarkey

Plus, not only can farms/small businesses pay over time, if the business is kept in the family for 10 years there is the ability to have the assets valued at its value as a farm or business, not what might be fair market value. This reduction can be significant, ranging from 40 to 70%, with a maximum of a million dollars in 2009 (currently moot).


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Old 11-09-2010, 10:27 AM   #105
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At the risk of appearing petty and difficult - it has nothing to do with fairness. Loophole is a term of art and you used it incorrectly. I understand that you are opposed to these exclusions for many reasons and I respect your reasoning even if I disagree with it. My point is that they are simply not loopholes. They may be horrific exclusions from the tax base that stand to rip the very fabric of society, but they are not loopholes. A loophole is a legal way to avoid tax that was unintended by the legislature or drafting body.

From my short time here I know you are a highly respected and influential member of this forum. I just want to make sure that people understand that there are no deceptive practices going on with these exclusions and your opposition is from a policy standpoint.
You are right. Technically the word loophole does refer to an unintended consequence, not intended consequences. Correction accepted.
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Old 11-09-2010, 10:37 AM   #106
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I question this clearly speculative statement. Even in 2004, when the credit was 1.4 million, the percentage paid in tax just is not that high.

Of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent. These were taxable estates valued at less than $2 million.Very large estates valued at over $20 million paid at an average effective rate of just over 22 percent. FactCheck.org: Estate Tax Malarkey

Plus, not only can farms/small businesses pay over time, if the business is kept in the family for 10 years there is the ability to have the assets valued at its value as a farm or business, not what might be fair market value. This reduction can be significant, ranging from 40 to 70%, with a maximum of a million dollars in 2009 (currently moot).

I agree with this one. I was involved in estate planning a few years ago and had access to nationwide surveys covering 30+ time periods about business failures related to the death of the person most involved in the business. The failures were almost always the result of no succession planning, fights between heirs for control, etc. but not a failure due to insufficient liquidity to pay estate taxes. The information was used for marketing estate plans, not tax planning although the two usually go together.

I still think the estate tax is bad from a philosophical standpoint and a practical desire to pass as much on to my children as possible, but I don't think the policy arguments are compelling either way.
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Old 11-09-2010, 10:39 AM   #107
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I would much prefer that the unrealized gains on assets be taxed... or that the basis of an asset is passed on the the receipient...
Part of the problem is a record keeping problem. It can be hard to impossible to figure out the basis of assets that were not owned by you. My father (who didn't have a taxable estate but close to an insolvent estate) did not have good record keeping. Maybe I could have figured out the value of his home by the deed tax he paid when he bought it, but everything else, no way to know. I wonder how well this works in Canada and what exactly is included in the calculation. Grandmas teapot?
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Old 11-09-2010, 11:02 AM   #108
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I sure hope you guys get this all sorted out by Jan 1, 2011.
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Old 11-09-2010, 11:40 AM   #109
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Part of the problem is a record keeping problem.
I'd rather have to figure basis values for significant parts of the estate than go through the agony and cost of dealing with law firms to take advantage of Congress provided work-arounds to escape the worst aspects of estate taxes.

I strongly agree with Texas Proud. Let's pay capital gains tax on our estates as they pass to heirs rather than washing those away. And let's eliminate estate taxes which over time have varying and seemingly arbitrary exclusions, rates and work-arounds.

I'm sure this will vary from person to person, but to me it would be a snap to keep records of the cost basis of the significant items making up my net worth (the house, stocks, bonds) compared to visiting a law firm to have the various estate tax work-arounds implemented by attorneys and CPA's.
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Old 11-09-2010, 12:26 PM   #110
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Originally Posted by Texas Proud View Post
I would much prefer that the unrealized gains on assets be taxed... or that the basis of an asset is passed on the the receipient...

That eliminates the estate tax... that eliminates all the money spent trying to avoid it... that eliminates all these trust that the gvmt has to deal with trying to avoid it... that eliminates having untaxed gains...

And I think it is a pretty big net plus to society...

If the family wants to continue the farm (this is if basis is passed)... they can... but if all the kids want to sell etc. they pay their cap gains tax...

At the end of the day I bet that the gvmt makes more money this way than they do with the estate tax... because it hits ALL estates for all untaxed gains....
Just as long as you tax the unearned income to the recipient like all other unearned income is taxed.
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Old 11-09-2010, 12:30 PM   #111
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Part of the problem is a record keeping problem. It can be hard to impossible to figure out the basis of assets that were not owned by you. My father (who didn't have a taxable estate but close to an insolvent estate) did not have good record keeping. Maybe I could have figured out the value of his home by the deed tax he paid when he bought it, but everything else, no way to know. I wonder how well this works in Canada and what exactly is included in the calculation. Grandmas teapot?

Good point... OK, let's give an exemption for a certain amount of 'gain' for unknown assets.. $500K... $1mill... whatever...

Right now, if you can not prove your basis it is zero... so if you inherit property and can not find the basis, it is zero... so if you sell it is 100% capital gain... (except for that exemption we are giving)....
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Old 11-09-2010, 12:32 PM   #112
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Just as long as you tax the unearned income to the recipient like all other unearned income is taxed.
Not a problem with me....
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Old 11-09-2010, 12:36 PM   #113
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Just as long as you tax the unearned income to the recipient like all other unearned income is taxed.

To have this be apples to apples, isn't that something we should do under the estate tax scheme as well?
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Old 11-09-2010, 12:41 PM   #114
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Good point... OK, let's give an exemption for a certain amount of 'gain' for unknown assets.. $500K... $1mill... whatever...

Right now, if you can not prove your basis it is zero... so if you inherit property and can not find the basis, it is zero... so if you sell it is 100% capital gain... (except for that exemption we are giving)....
I'd agree with some level of exemption to cover things like antiques, collectible, etc. Everything else would generally be easy. By law, you already have to know your basis for financial assets such as stocks and bonds. And your house already has an exemption built in, $500k I think. If I croaked this afternoon, my son would only need my Schwab password and everything he'd need would be at his finger tips. And, oh yeah, he has my Schwab password.

It's easy to give silly, off the wall examples of appreciated assets where estimating the basis would be difficult. But those cases are going to be in the extreme minority. An exemption level would take care of those.
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Old 11-09-2010, 12:45 PM   #115
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I've read all the posts here and want to get my 2 cents in.

I look at the estate tax from the perspective of the living, not the deceased. I'd rather see a federal inheritance tax than a federal estate tax.

I don't buy any argument that sounds like "I have an absolute right to do what I want with my money." Sorry, living in a modern country means paying taxes.

I don't buy the "but we have to keep family businesses together" argument. If the value of a business is twice the standard estate tax exemption, and the tax rate on the excess is 50%, and people can spread the payments over 14 years, then the business has to generate free cash flow equal to 1.8% of it's market value to pay the tax. I'd like to see the financials of a business that can't do that.

I don't buy the "but the rich will always avoid it" argument. Sure, we all try to avoid taxes, but that doesn't mean we set tax rates at zero. The IRS watches what people do and closes down unintended loopholes (I won't get into a semantic argument here) as they come up. That's what we do with any tax.

I have some mild agreement with the "already taxed" argument. But I know a lot of the gains in big estates are unrealized capital gains that have never been taxed. More important, I pay Medicare, Social Security, Federal Income, and State Income taxes on my earned income, then I pay sales tax on those dollars when I spend them. That's kind of life.

I don't buy the notion that the money in large estates arises from incredibly hard work over a lifetime. I think that lots of people work very hard, much of the difference in result is luck. To a large extent, when we tax big estates were taxing extremely good luck, not hard work.

I do accept the notion that a democracy shouldn't have a hereditary "nobility". In fact, the US constitution prohibits granting titles in two places. IMO, great wealth is the modern equivalent of a titled class. Very wealthy people have advantages before the law because they can hire the best lawyers, they have advantages in making laws because they can make the big political contributions. I think it's beneficial to society that we break up those big estates. (One reason I prefer inheritance taxes. I'd rather see the deceased spread the estate among many people rather than leave it to one.) I think we should respect hard work, but to me that means our financial position should be based more on what we do an less on what our ancestors did.
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Old 11-09-2010, 12:48 PM   #116
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I hope we're not talking about some kind of "exemption" or floor for the passing of this unearned income from generation to generation. Why would we do that? If the sentiment is "this is just income like every other kind of income, treat it that way" then we should be consistent. No exemption. When Mom dies and leaves her $75K house (purchased in 1965 for $15K) to Junior (who earns $20K per year), then Junior just received $60K in income (or tax it as LTCG). Likewise with the car and furniture. Or Dad's dry cleaning business. We've already got a very considerable personal exemption and a standard deduction. Junior, along with 47% of Americans, doesn't normally pay a penny in income taxes. But, this year he's firmly in the middle class. "Welcome to the big leagues, now pay your taxes and help us carry the load." We've already got progressive taxation, so Junior won't pay as much as a rich heir, but he's paying taxes on income like everyone else. If the taxes might be too much and he wants to keep Mom's house, I guess he should buy some insurance.

The more that taxes are focused on a few individuals ("Only the richest 1% are affected! Big deal!") the more we have a punitive arrangement. Let the burden fall lightly but broadly on all. In the bargain, "Junior" might come to have a more rounded opinion about the virtues of taxation.
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Old 11-09-2010, 12:50 PM   #117
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To have this be apples to apples, isn't that something we should do under the estate tax scheme as well?
Taxing the unearned income after an estate tax would be taxing the same money twice, so it should be either the estate tax or tax the gains and unearned income.

Much of the argument against estate tax is philosophical - not against tax, just that method of taxing. Fair enough. Then eliminate the estate tax and then tax 1)unrealized gains on assets, and 2)unearned income to recipients. If the recipient is a tax free entity, such as a charity, they pay no tax. If it's the kids, then they pay taxes like any other unearned income.

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Not a problem with me....
Then we agree. Go figure. I prefer the estate tax but can live with the alternative. Cheers!
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Old 11-09-2010, 12:51 PM   #118
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This impacts a very small percentage of estates. If the additional revenue can go to funding public pensions or to make college more affordable then my only question is why is someone arguing the issue.
Surely no one with a public pension or wondering how to afford college would argue the issue. As the old saying goes, "Robbing Peter to pay Paul is sure to have the support of Paul."
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Old 11-09-2010, 01:00 PM   #119
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Taxing the unearned income after an estate tax would be taxing the same money twice, so it should be either the estate tax or tax the gains and unearned income.
I guess we can just agree to disagree on that one. I think it would be taxing the same money twice in either case.

We're hypothesizing two cases:

The heir receives the residual of the estate after estate taxes are paid

The heir receives the residual of the estate after capital gains taxes are paid

I say if you're going to consider the residual amount as unearned income and taxable to the heir, it should apply to either. There would be no more "double taxation" to one than the other.

In any case, my only dog in this fight is that I'd like to see whatever tax system we use to dip into citizens' "leftovers" at death be straight forward and easy for the average citizen to understand and plan for without the use of expensive attorneys and CPA's.
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Old 11-09-2010, 01:02 PM   #120
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I guess we can just agree to disagree on that one. I think it would be taxing the same money twice in either case.
Not a problem for the government, it has already proven itself to be quite adept at this trick.
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