No politics please, thoughts on repeal of the estate tax ?

[FlaGator]

Repeal it completely.

In the extremely unlikely event I exceed the threshold, I don't think leaving that much to 2 kids presents a threat to the social order.

As noted above, wealth is far more likely to dissipate over time than continue to grow.

If one is concerned about concentration of wealth and dynastic societal influence lasting for decades, the charitable foundations started by the uber wealthy might be a better place to look.

 

[MarieIG]

I would be totally fine with the repeal of the Estate Tax. The money has already been taxed, and I see nothing whatsoever wrong with passing down family wealth. I do not have a fear of billionaires running around spending money, I think that is just stimulating the economy. So what if they build mansions and collect art. I do not dislike anyone based upon their net worth, and have no desire to see wealthy persons fleeced by the government.

 

[Texas Proud]

I'd like to see a special exemption for the farmers and small business owners who would be severely affected, but over a certain inheritance limit, I think it is a good thing.

I think they already have special exemptions and/or payment schedules...

 

[Texas Proud]

I think the estate tax should only apply at higher amount. Maybe over 50M. But one thing that seems to be highly beneficial that I do not see any justification is the step up basis. I am hoping to benefit from this myself. But it is unfair to not pay any income tax on appreciation upon death.

This has always been a problem since knowing the basis is (at least was) almost impossible... and it is unfair to tax 100% which is what should happen if you do not know basis....

 

[Texas Proud]

I see that my answers on the prior two posts were already answered....


As to the tax, I used to think it should be repealed... and I used to do estate taxes way back in the day....

I now think that with all the billionaires out there that there should be a tax... I just do not think it should be as high as it is (is it still 55% max?)... have a decent exemption but tax at a high of 35%, or 25%....

I just looked and 2013 had just over 4,000 taxable estates... anybody with enough money to have a taxable estate will be able to have insurance or other ways to pay or reduce their taxable estate... Gates and Buffet will be giving almost all of their away....

 

[Montecfo]

This has always been a problem since knowing the basis is (at least was) almost impossible... and it is unfair to tax 100% which is what should happen if you do not know basis....

You just estimate.

But back to the estate tax, I am not for wealth taxes, as there is no transaction to create liquidity. Plus it is confiscatory.

I think carrying over the old basis is fine also. Maybe some safe harbor rules when records are lost.

Having said all that, exemption at 22m for a couple seems like a step in the right direction.

 

[lemming]

+1

That is the step I think they need to make to current situation. No worry about selling the farm to pay taxes until you sell the farm.

My thoughts are that that is what they were moving towards when they required brokers to report cost basis. I know my records are probably not accurate for a long term holding where I reinvested dividends for years.

It could be a nightmare for both the taxpayers and the IRS in determining the basis. Maybe that is why the rules are what they are.

 

[scrabbler1]

Keep the estate tax. To me, it is income to the recipient and should be taxed (above an exemption which is already very high). The fix made in late 2012 ("Fiscal Cliff") was reasonable, and automatically indexing it was a good move, consistent with how our other income tax brackets are indexed.

 

[YVRRocketSurgery]

We don't have an estate tax in Canada. However, upon death, all your assets are considered sold so the capital gains from your assets are realized and taxed before distributed to your beneficiaries with a couple of exceptions (eg Your registered retirement savings can be passed onto your spouse without being taxed, one primary residence is capital gain exempt, etc). I think this is pretty fair.

Is it correct to assume that in the States, your assets can be passed to your beneficiaries without being taxed, other than provisions in the Estate Tax, because the assets aren't considered sold?

 

[Curmudgeon]

Keep the estate tax. I don't understand why one child should get a huge bonus from death of a (rich) parent, while another child, born of poorer parents, should get nothing. Enormous inheritances make as much sense as the concept of 'noble blood', wherein if you were born into a noble family, you too were considered nobility and thus granted special privileges that others were denied.

Sorry, but if you want money, work for it. Don't expect to have it given to you just because you won the 'parent lottery'.

 

[travelover]

I'd like to see a special exemption for the farmers and small business owners who would be severely affected, but over a certain inheritance limit, I think it is a good thing.

I believe both of these exist now which allow farmers and small business owners to spread their estate tax over 15 years (or some such number)...............

I'm surprised because this always seems to be a key argument for getting rid of the estate tax - looking out for the small businessman.

 

[gcgang]

Sock it to those rich people! While we're at it, let's lower the exempt amount back to what it was in the 80's, $600,000. Lol.

Actually, I think getting rid of it but realizing all gains on a final return is a very fair idea. Oh, Canada.

 

[donheff]

The basis step up eases accounting since records of the decedent's cost basis are notoriously difficult to find. The taxes lost by this cost basis step up are in effect recovered by an estate tax. The estate tax exemption had not been indexed for inflation, which has been an argument for raising the exemption amount. I believe those raises during past 10 or so years have more than made up for inflation during the past 50 or so years.

It does seem fair that people paying estate taxes don't pay CGs but I don't think difficulty calculating basis is a good reason to avoid taxing gains in the absence of an estate tax for amounts over a substantial threshold. People leaving large estates had to be (or should have been) tracking basis just to deal with their own finances. I suppose its possible that some Croesuses out there are so rich that they clip coupons and never pay attention to the change in principle. But, in that case, the fortune has probably been around so long they everything over the initial threshold may as well be assumed to be gains. They can afford to pay CG on the whole nut anyway. It would be a lot cheaper than the estate tax.

PS: I don't agree that this topic is inherently politically partisan. It simply invites griping about the vagaries of wealth disparity which is inherently no different than the griping threads about public pensions.

 

[Danmar]

So what does the group think about the possible repeal of the estate tax. Granted I doubt if it would affect many, if any here, but just curious as to your thoughts. Some good background reading about the estate tax below.

https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax

Canada has no estate tax and thus no need for any “gift tax”. There is a “deemed disposition of capital assrts” on death though. This taxes cap gains (unless a spouse is beneficiary).

As a I see it, the problem isn’t so much with repealing the estate tax, but rather with the step up which allows capital gains to pass untaxed from generation to generation. The argument that the step up relieves people of onerous record keeping is very weak, in my view. You could easily put an exemption for the first $x of gain that would relieve small investors of the requirement to calculate their tax basis.

Does anybody really think that billionaires can’t figure it out? Or pay their accountants to figure it out?

 

[Danmar]

I'm not in favor of the estate tax because that wealth has been taxed all along as it was built because of income taxes.... but to be consistent, then there should be no step-up


Or alternatively, allow a step up in basis and replace the estate tax with a final return tax on unrealized appreciation.

You’ve pretty much described how Canada does it.

 

[Senator]

As long as they repeal it for me, I am OK with it.

 

[gerntz]

I don't think tracking/finding basis costs is all that difficult IF the owner isn't constantly reinvesting dividends.

Is it unreasonable to expect an owner to keep track of/a file of their purchases? I don't. That some are lazy about that doesn't make it difficult. Historical stock splits can be readily found for the stocks I own.

 

[kcowan]

The basis step up eases accounting since records of the decedent's cost basis are notoriously difficult to find. The taxes lost by this cost basis step up are in effect recovered by an estate tax. The estate tax exemption had not been indexed for inflation, which has been an argument for raising the exemption amount. I believe those raises during past 10 or so years have more than made up for inflation during the past 50 or so years.

I think eliminating step up would be a big improvement, especially with a higher limit.

I believe both Senate and house bills double the current $5.5m exemption to about $11m per person or $22m per couple.

Yes but maybe they should reduce it to $15 million per family but reduce the bite to 25%.

Is it correct to assume that in the States, your assets can be passed to your beneficiaries without being taxed, other than provisions in the Estate Tax, because the assets aren't considered sold?

Yes other than the step-up provisions.

 

[Totoro]

In my view and in most studies I've heard about, extreme concentration of wealth for a long time is bad.

Also, selecting children of wealth creators as the next generation of wealth managers is bad policy. It's like sending the children of the 1980 olympics winners to the olympics of 2010. You want the best performers to get the best rewards.

I'm also in favor of leaving people alone with the wealth they've accumulated. And I think charities are often abused.

So for me it is: no to capital gains tax, yes to inheritance tax, yes to a gift tax, no to special tax status for charities, yes to a capital tax above a certain high threshold (say $200M or so).

Here in the Netherlands capital is taxed mainly as follows:

• You pay a capital tax (regardless of actual gains or losses!), roughly 1.2% per year.
• 20% to kids, up to 40% inheritance and gift tax above 100k or so.

The first one in my book is theft or confiscation, the second one is somewhat reasonable but very low thresholds. Also, since I'm childless I consider it unfair I can't leave my nieces anything at the "kids rate". Assuming I'll leave anything at all, that is.

 

[pb4uski]

You’ve pretty much described how Canada does it.

So do they tax net unrealized gains at death and allow step-up? Or have no estate tax but no step-up (heirs inherit assets at decedent's basis)?

 

[karen1972]

I'd like to see a special exemption for the farmers and small business owners who would be severely affected, but over a certain inheritance limit, I think it is a good thing.

Well with farm land skyrocketing, yeh the $5M exclusion is too small ..but you could up it to say $20M and that would cover almost everyone.

 

[USGrant1962]

Does anybody really think that billionaires can’t figure it out? Or pay their accountants to figure it out?

The estate tax starts at $5.49M, and because of the way it works is 40% on the first dollar above that. I just learned that the "exclusion" amount is actually a "unified credit" that reflects all of the estate tax nominally due on the first $5.49M, so you are in the maximum 40% marginal bracket immediately upon exceeding the exclusion.

Good summary here: https://www.fool.com/retirement/2016/11/11/2017-estate-tax-rates.aspx

Anyway, $5.49M is hardly a billionaire! As usual, the tax system hammers the upper middle class while the politicians only talk about billionaires.

I also think the 40% rate is confiscatory.

 

[Danmar]

So do they tax net unrealized gains at death and allow step-up? Or have no estate tax but no step-up (heirs inherit assets at decedent's basis)?

Deemed disposition on death, ie cap gains paid and tax basis moved up to market. Beneficiaries take over assets at that market price. Could call this a step up, I guess. Although could also make a case they are actual cost at that point.

 

[Danmar]

The estate tax starts at $5.49M, and because of the way it works is 40% on the first dollar above that. I just learned that the "exclusion" amount is actually a "unified credit" that reflects all of the estate tax nominally due on the first $5.49M, so you are in the maximum 40% marginal bracket immediately upon exceeding the exclusion.

Good summary here: https://www.fool.com/retirement/2016/11/11/2017-estate-tax-rates.aspx

Anyway, $5.49M is hardly a billionaire! As usual, the tax system hammers the upper middle class while the politicians only talk about billionaires.

I also think the 40% rate is confiscatory.

Don’t disagree, I was exaggerating for effect. Still do you think it’s that hard to calculate or estimate a basis? I do it all the time.

Do you think paying accrued cap gains tax at death is fair? I do.

 

[USGrant1962]

Don’t disagree, I was exaggerating for effect. Still do you think it’s that hard to calculate or estimate a basis? I do it all the time.

Do you think paying accrued cap gains tax at death is fair? I do.

Replacing the Estate Tax with an accrued capital gains tax is a fine idea, but no one in Washington is discussing that option.