Obviously no one here is psychic, but your guess is better than mine.
I don't have enough to worry about estate taxes, but everything I own was bought in 2008, so I have enormous unrealized capital gains. My "plan" is to sell nothing, in the belief that there will never be any tax on the capital gains in my estate. Is that how it works?
As I understand it,a few years ago Congress let the estate tax lapse for a year, but then the capital gains WERE taxed in estates. Is that correct?
What is anticipated for the future; a continuation of the current system, or something like the year that estate taxes lapsed?
Or maybe I am just totally confused.
If you are totally confused, you understand the situation perfectly.
There are many people in and out of politics that want as much of your money
as possible, as they feel they can serve mankind with it better than you
can, or better than they can with their own money. And/or they just can't
Watch for arguments for:
1. estate tax rates to go up
2. estate tax exclusion to go down
3. step up in basis to disappear
4. certain elements useful in estate planning (or favorable in computing
estate taxes) to disappear, such as discounts from appraised values of
underlying assets for partnership interests.
I am not saying any of these things will occur, but those takers will try to
make them happen.
I have yet to figure out how to plan given the above.
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President Obama recently proposed taxing inherited capital
gains over $200,000 (to use your terminology). That proposal
got shot down pretty quickly. In the current political
climate it's not going to happen. But 10 or 20 years from
now, who knows? Your guess actually is as good as anyone
else's. Of course, there will be lots of influential people,
many of them with much more money than you have, lobbying
against any change.
If the rules do change, though, millions of people will be
affected. You won't be the only one. There'll be plenty of
press about what, if anything, you can do about it. In any
case, there's nothing you can do about it right now.
In article ,
Considering the influence of the people that this will affect the most,
I think there's a good chance that if there's a radical change in the
future there will be a grandfather clause (appropriately named, since
the people it benefits will mostly be elderly). So if you're still young
when it happens, you'll likely have time to plan.
First of all, in the nearly 40 years I've been watching (and it may
be a lot longer, but I'm just not going to take the time to check)
any changes to the estate tax have been in increase the exemption
and lower the tax (except for the time they brought it back after
eliminiating it completely).
So if the estate tax goes in any direction, my guess is that it is
more likely to be in a way that is more favorable to the taxpayer
Second, when the generation skipping transfer tax came into being,
there was a provision that allowed an exemption for trusts drafted
within a specific time period. At the time it was informally
called the Gallo exemption, because it was thought to have been
inserted as a favor to the Gallo wine family.
: > In article ,
: >> If the rules do change, though, millions of people will be
: >> affected. You won't be the only one. There'll be plenty of
: >> press about what, if anything, you can do about it. In any
: >> case, there's nothing you can do about it right now.
: > Considering the influence of the people that this will affect the most,
: > I think there's a good chance that if there's a radical change in the
: > future there will be a grandfather clause (appropriately named, since
: > the people it benefits will mostly be elderly). So if you're still young
: > when it happens, you'll likely have time to plan.
: Have we ever seen any such grandfather clauses for all the various changes
: in the estate tax in the past? I don't recall a single one.
Back in the 70's when ending stepped up basis was first proposed, it
allowed that chang(never actually enacted) to start as of the date of
instituting the law, so any gains form purchase to that date would still
be considered part of the basis withonly the gains fomr the effective date
to be considered whenever the stock was sold. this stepped up basis would
have affected, thot the person whose estate it ws during hir lifetime, but
would have affected those who inherited the stock, house, or whatever that
had had gains fomr the date of the law. I would call thins a kind of
semi-grandfathering as it would not have required maintatining the basis
from the time of purchase, but from a a January 1 197?. All kinds of
tables were published innewspapers for stock bases on that January 1. For
tangible objects or real estate gettign that basis correct was more
In 2010 the year the estate tax ws supposed to end and all bases were to
be stepped up , it was scary for my family as mu husband lasft
considerably less than the amount previously allowed for no estate tax adn
we would have had to pay stepped up basis on all his holding and the real
estate, leavign us much worse off than having an estte tax only for
estates about a certain level as it is now. Fortunately, they changed the
law in the middle of the year giving one a choice of paying an estate tax
for estates above $5,000,000 and stepped up basis for all or paying no
estate tax even on billions but with stepped up basis for all, eventhose
with esttes less than $5,000,000. IIRC George Steinbrenner, the owner of
the NY Yankees died that year and his familiy had the choice.
In article ,
Yeah. One of the biggest complaints about the estate tax is that it
hasn't been indexed to inflation. So the percentage of taxpayers who
fall into the range that it affects has steadily increased, so it now
affects many middle-class families, not just the "rich".
My, it's been a while since I've seen so many falsehoods in one paragraph
(most likely due to their frequent repetition in some parts of the media.)
The estate tax is indeed inflation indexed. The individual exemption
was $5.25 million for 2013 and is now $5.43 million. Since most rich
people are married and a couple can share the exemption, that means that
estates under $10,860,000 pay no estate tax at all. Zero. Zilch. The
rate starts at 7.7% on the next $5m per individual ($10m per couple),
so you'd need impressively incompetent estate planning for that to
destroy your assets.
Maybe things are different in other parts of the country, but around
here, people with $10 million estates are not "middle class."
This web page has some other useful info, such as addressing the myth that
the estate tax forces people to sell small businesses (it doesn't) or to
break up family farms (nobody's ever been able to provide an actual case):
I'm not an estate tax expert, but we certainly saw a grandfather clause
for mortgage interest deductions (pre-May 1987), and for rentals
converted to personal residences (pre 2009), so it's not like the
concept is that rare or unlikely.
The tax itself isn't indexed for inflation. But the lifetime
Well, sort of. If someone dies and the spouse remarries, the
surviving spouse will only get to use the married couple portable
exclusion once. So it is possible that one may go to waste, unless
proper planning procedures are used.
I have no idea where you get that. Under the code, the rate of tax
is 40% on estates over $1 million. Estates over $5 million are
certainly more than $1 million.
It DOES force people to sell small businesses, or take on a lot of debt to
I find a lot of bad conclusions in that article. The biggest one of all is
that if few people pay the tax, it is somehow "fair".
On occasion. Generally it is thought that the people who may be
required to sell sell or property to pay the estate tax will be
left with enough money that they can afford to do that.
But are you entitled to a lot just because your parent accumulated
The government must be funded somehow. Most people think it's fair
that those with more have the ability to pay more, and so they
How would you allocate the obligation to fund the government?
Really? Do you have citations?
I would think that if I had a family owned business worth over $10M, I
would pay someone to do estate planning and probably buy some
insurance to pay the tax. If this is a tax on people too dim to
realize that they're not immortal, my sympathy is limited.
So, what's so bad about that? Successful businesses borrow money all
the time. Just like other retirement investments, the ability to defer
income during one's lifespan is not meant to automatically extend to the
heirs in perpetuity.
Yup, things change when a business owner dies. Note that if the
business was truly "family owned", then there would not be much of an
estate issue since the family owners would still be alive.
So, they have to buy expensive insurance rather than investing in their
business? And depending on the specific situation, pay gift taxes to fund
the insurance? This death tax is a total distortion of reality at all
Perhaps you have not been involved much in family businesses. The old world
has not left us, and many such small businesses pay the second and third
generation less than they might get elsewhere, to keep building the business
for their eventual inheritance. So, the next generation already has
contributed to the business, although they don't have title. And don't tell
me they should just pay the second generation more, blah, blah, blah. That
is not how many such businesses and families operate and I don't like tax
policy further eroding the family unit.
The biggest problem with the estate tax is that it is another "one size fits
all" government policy, and people look at Warren Buffet and Bill Gates to
think about how out estate tax should be. They are a rather special case,
and nothing done to the estate tax, other than not allowing charitable
deductions prior to figuring the tax, will effect them whatsoever. Not so
with more run of the mill people subject to the estate tax.
One of the reasons for gift and estate taxes is that this country,
as opposed to some others, doesn't want dynasties, people with no
ambition, no motivation, who contribute nothing to society or to
themselves, and live off the labor of some dead relative.
As John said, if someone is in a situation where he can accumulate
$10 million over his lifetime, there are ways he can minimize the
effect of estate tax on his heirs. If he doesn't do that, perhaps
he figured that his heirs should work a for what they have, like he
If the second and third generations invest in a business by working
there for less, that is their choice. And the choice of their
parents. It is, after all, an investment in the future.
But the parents also have ways to transfer ownership to the
children over the years, and reduce estate taxes that way. If they
don't, it may well be on purpose, fuguring the younger generations
should not receive everything they want, tax free, merely by viture
Again, that is the choice of the business owner.
It costs the business owner next to nothing to slowly transfer
ownership to his heirs over the year. If he does not do that,
that's his choice.
True family businesses have provisions in the tax code to pay
estate taxes over time at low interest rates. But someone has to
pay taxes to fund the government. Where would you prefer that
money comes from?