Estate taxes in the future?

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.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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 stand it!
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.
--
This email has been checked for viruses by Avast antivirus software.
http://www.avast.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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.
Bob Sandler
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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.
--
Barry Margolin
Arlington, MA
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

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.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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 than otherwise.
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.
--
Stu
http://DownToEarthLawyer.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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".
--
Barry Margolin
Arlington, MA
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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):
http://www.cbpp.org/cms/?fa=view&id &55
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

The tax itself isn't indexed for inflation. But the lifetime exclusion is.

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.
--
Stu
http://DownToEarthLawyer.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Sorry, that was an effective rate on the whole estate. You're right, once you're above the exclusion amount, the rate quickly ramps up to 40% on the taxable amount.
R's, John
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

It DOES force people to sell small businesses, or take on a lot of debt to maintain ownership.
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".
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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 a lot?

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 should.
How would you allocate the obligation to fund the government?
--
Stu
http://DownToEarthLawyer.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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 levels.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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 did.
--
Stu
http://DownToEarthLawyer.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

There is no difference in estate tax if the estate is given to one person or twenty people. A bit of inconsistency re the "dynasty argument".
And, even the mafia couldn't keep it together past two generations. Dynastys are not self perpetuating - the younger heirs blow it after a couple generations, so don't even worry about it. And if they don't, it is because they are being productive.

you make it sound like nobody is socked with the estate tax. If it were possible to avoid, there would be no argument and no estate tax.
Seems to me that many of the people paying no estate tax and no income tax meet your description of "people with no ambition, no motivation, who contribute nothing to society or to themselves, and live off the labor of some dead NON relative."
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 2/28/15 12:45 PM, John Levine wrote:

This is where the issue gets tough. Part of the history of this objection, the "family business" concern, was regarding family farms. It's not tough to imagine a farm worth quite a bit, yet producing a return that provides a middle class income to the family running it. One can debate whether it makes any sense for someone to keep a $10M piece of land operating as a farm, but resulting in some small return after expenses, but that's the choice many of the owners are making. This situation is the poster child for that "family business" issue.
I mention this, but I agree with you. My wife and I were W2 employees for 30 years, and high savers. When the exemption was sub $1M, we needed to do some planning. But, in the end, why should our savings be treated any differently than the wealth of someone tied up in a business, small, large, farmland, etc?
In the end, it's all of these exceptions that make the tax code so complex. Long term, the estate tax structure should stay as it is, continue to be indexed, and those subject to it should be offered a payment plan regardless of the asset being taxed.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Congress has made payment of taxes for farms and other closely held (family) businesses easier in two ways. First they allow special use valuation. Normally for tax purposes a property is valued as if it could be used for its most productive use. But for farms especially, the land will be valued as a farm and now for how it could be used (e.g. for development), often resulting in a much lower value.
Additionally, payment of estate taxes on farms and closely held businesses can be paid over 14 years. There will be interest, of course, but that interest is pretty reasonable. And principal payments may be skipped for the first four years.

Exceptions are what make all forms of taxes so complex. It's not just for raising money, but also for social engineering. And that's not always a bad thing.
--
Stu
http://DownToEarthLawyer.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 2015-02-27 22:30, Reggie wrote:

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.
--

Mark Bole, EA
http://markboletax.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

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.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.