Why inheritance is the dirty secret of the middle classes

[ERD50]

It's very common, especially before the estate tax exemptions were significantly increased, for closely held businesses regardless of form, to buy whole life aka permanent life insurance with a death benefit sufficient to pay the projected estate tax so they didn't have to sell the business. ...

And I don't think a business should be forced to jump through these hoops. Heck, Congress can (and has) change(d) the estate tax limits and rates. So the insurance that was paid for is either not enough, or excess premiums were paid. And maybe the owner no longer can get life insurance.

A business should be allowed to concentrate on their business of providing value to their customers, not moveable, unpredictable tax games.

-ERD50

 

[Sunset]

But that is what happens with nearly all assets. Bonds are some of the worst for this...you barely keep up with inflation then are taxed on it. Why should inherited assets get a free pass?

(IMHO)
It should be the other way, all assets should be taxed after factoring in inflation, meaning only tax the REAL increase.

 

[pb4uski]

...that's such a moving target in today's climate. Farmland in particular is a huge issue...LI gets more expensive as you age unless you got sucked into a whole life policy. Can you imagine term insurance for a 75 YO if they could even qualify for term. Yes can get some payout to mitigate cash outlay for estate tax but you can't really cover it all. It's an issue...the only saving grace would be a stepped up basis if you do have to sell land.



We haven't even opened our estimated notice of tax for next year. A farm got sold that is probably 2 miles from our house and two neighbors got into an insane bidding war. That's going to end up costing us money.!!! And if someone local died tomorrow that would factor into any possible estate tax...

That's why whole life is typically used for these purposes. Whole life levels out the cost. Term is not a good product for this approach for the very reasons that you mention.

The rest sounds like a first world problem to me.

 

[pb4uski]

And I don't think a business should be forced to jump through these hoops. Heck, Congress can (and has) change(d) the estate tax limits and rates. So the insurance that was paid for is either not enough, or excess premiums were paid. And maybe the owner no longer can get life insurance.



A business should be allowed to concentrate on their business of providing value to their customers, not moveable, unpredictable tax games.



-ERD50

A business isn't forced to jump through any hoops. They can chose to not do any estate tax planning if that's what they want. Just don't complain when the estate tax bill comes since you had a chance to mitigate it with LI but decided not to. No problem.

And taxes are always changing. Put on your big boy pants and deal with it.

 

[pb4uski]

But that is what happens with nearly all assets. Bonds are some of the worst for this...you barely keep up with inflation then are taxed on it. Why should inherited assets get a free pass?

+1. Inherited assets shouldn't get a free pass Suck it up buttercup.

 

[ERD50]

+1. Inherited assets shouldn't get a free pass Suck it up buttercup.

Like any other asset, they will get taxed when they get sold. You're getting rather rude, that's a sign your argument is weak.

-ERD50

 

[ERD50]

A business isn't forced to jump through any hoops. They can chose to not do any estate tax planning if that's what they want. Just don't complain when the estate tax bill comes since you had a chance to mitigate it with LI but decided not to. No problem.

And taxes are always changing. Put on your big boy pants and deal with it.

Now you are just word-smithing this. Sure, they don't have to jump through hoops, but then they get hit with a tax that could force a fast sale of the property.

I could also say you don't have to take your RMD from an IRA, it's not really "required". But you pay a 50% tax rate if you don't. So most people would say you "have to", to avoid a big tax hit.

-ERD50

 

[MichaelB]

<mod note> A reminder to stay focused on the ideas being discussed and not make it personal.