The Estate Tax (1 Viewer)

Estate Taxation?

  • No Tax

    Votes: 44 51.2%
  • Tax all of it at income tax rates

    Votes: 8 9.3%
  • Tax some of it over a certain amount

    Votes: 23 26.7%
  • Screw the Rich!

    Votes: 11 12.8%

  • Total voters
    86

Brown

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I did a search and didn't find a thread topic on the Estate Tax. I thought perhaps it was an issue worthy of it's own thread so I'm throwing it out there for debate.


As we stand now, I think if the Bush tax scheme expires then we'll revert to 55% tax on estates over a 1mm threshold.

Not sure what Obama's plan is but I believe it's got a higher threshold.

My stance hasn't changed. No tax at all on anyone's personal income or estate.

So what do people want?
 

RussTKD

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An estate over X million dollars subject to tax rates comparable to income tax, but only on the portion inherited by individual heirs.

If someone dies with a hundred million dollar estate, but gives 90 million to charity and splits the remaining 10 million between his 4 kids, then each kid pays a percentage of his share as income tax.

Exclude a family business if it's not being sold/liquidated and one (or some) of the heirs take control of the business.
 

Shawn

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An estate over X million dollars subject to tax rates comparable to income tax, but only on the portion inherited by individual heirs.

If someone dies with a hundred million dollar estate, but gives 90 million to charity and splits the remaining 10 million between his 4 kids, then each kid pays a percentage of his share as income tax.

Exclude a family business if it's not being sold/liquidated and one (or some) of the heirs take control of the business.
This, but the exemption rate should be low, an don't exclude family businesses--that's a nightmare. If you inherit a business of consequential size, you should be able to amortize the tax over time the same way you depreciate an asset. Inheriting a viable business provides an assett against which someone could, if necessary, borrow money in order to pay the tax.

In other words, if Tom Benson leaves me the Saints, and I owe 230 million in taxes, there's no reason I couldn't pay that tax over 7 years and also borrow against the equity of the team to pay it.
 
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Brown

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This, but the exemption rate should be low, an don't exclude family businesses--that's a nightmare. If you inherit a business of consequential size, you should be able to amortize the tax over time the same way you depreciate an asset. Inheriting a viable business provides an assett against which someone could, if necessary, borrow money in order to pay the tax.

In other words, if Tom Benson leaves me the Saints, and I owe 230 million in taxes, there's no reason I couldn't pay that tax over 7 years and also borrow against the equity of the team to pay it.
One problem with the way business' are handled is how they go about valuing the business.

I have a friend whose father had a cabinet making company and did very well. He was basically a one man show and had a real following in his ability to design and custom make anything a person wanted. His name was on the business too. He died tragically and too soon and unfortunately he hadn't enough time to pass the trade onto his son or anyone else.

The business was worth well over 5mm with the plant, equipment, revenue etc. These people didn't live like NBA stars... They were a pretty modest group.

The IRS valued the business as it was the day before he died (ie as though he were alive). Essentially thought the business was worth far less since the father basically WAS the business.

They had to sell what they could from the business and shut it down. That kind of stuff makes me wonder if some consideration should be made for situations like this.
 

DaveXA

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I know it would be very complicated to do so, but I would be in support of estate taxes in the event that it would allow a family business to stay intact with said family and the tax would be levied based on the net income from the business rather than on the estimated value of the business assets at a point in time. Amortizing the tax may make it easier to keep the business intact, but it could put them in the red and cause liquidation anyway.

I'd prefer no estate tax since I consider it to be double taxation. Tax is paid when earned, so there shouldn't be a tax when death occurs.

That said, I think somewhere between 20% to 30% on estates exceeding $10 million is the way to go. Less than $5 million doesn't get very far with a lot of small businesses these days.
 

dtc

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One problem with the way business' are handled is how they go about valuing the business.

I have a friend whose father had a cabinet making company and did very well. He was basically a one man show and had a real following in his ability to design and custom make anything a person wanted. His name was on the business too. He died tragically and too soon and unfortunately he hadn't enough time to pass the trade onto his son or anyone else.

The business was worth well over 5mm with the plant, equipment, revenue etc. These people didn't live like NBA stars... They were a pretty modest group.

The IRS valued the business as it was the day before he died (ie as though he were alive). Essentially thought the business was worth far less since the father basically WAS the business.

They had to sell what they could from the business and shut it down. That kind of stuff makes me wonder if some consideration should be made for situations like this.
I buy a lot of cabinets from the very best craftsmen in our area. None of them are one man shows if they have plant, equipment and revenue worth $5mil even as valued by an insane IRS agent. When you talk about this guy being able to craft anything, it sounds like Gipetto in his workshop fashioning cabinets one at a time and hand rubbing custom finishes by candlelight, but I don't think that's accurate.

Even if the based the value of the business on 5 times revenue, he would have had to be doing $1mil per year in cabinets. That's an incredible amount for a one man show with a helper or two so when you're talking about a one man show, you're really talking about a guy with 20,000 sq ft and hundreds of thousands of dollars in table saws, planers, presses, moulders, profilers, stripping and sanding booths and finishing buildings. That guy has to have a couple panel trucks a couple crews of installers, salesmen, cad designers and a book keeper.

Even if the picture you're painting is dead accurate, the fact that the business died was not because of the tax. It was because the owner failed to plan for succession. He had no manager in place or family member ready to take over his job. That's the risk of being a one man show. He's the value and he's the person who is key to the business and without him there is nothing, but a collection of tools and equipment surrounded by a bunch of guys looking for someone to tell them what to do.

If those tools and equipment are worth $5mil cash value, then I have no problem taxing the heirs on whatever portion is above the threshold. The father should have planned better.
 

DaveXA

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The father should have planned better.
This is really the bottom line. While estate taxes make it harder to pass a business down the line, it's often quite possible to plan properly to significantly reduce/avoid estate taxes. My big beef with estate taxes is that it has been a moving target for several years, as has been income taxes. I really think we need to stop moving the target around so much and settle on a permanent rate and move on to other pressing issues of government. Until this happens, it will be difficult for businesses to make hires and make long term plans. We as a country need to provide a stable business environment to see significant growth down the road.

JMHO.
 

RussTKD

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This, but the exemption rate should be low, an don't exclude family businesses--that's a nightmare. If you inherit a business of consequential size, you should be able to amortize the tax over time the same way you depreciate an asset. Inheriting a viable business provides an assett against which someone could, if necessary, borrow money in order to pay the tax.

In other words, if Tom Benson leaves me the Saints, and I owe 230 million in taxes, there's no reason I couldn't pay that tax over 7 years and also borrow against the equity of the team to pay it.
If Benson leaves you the Saints, you'll have my resume' as IT director on your desk on day 1. I expect careful consideration.
 

V Chip

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Tax is paid when earned, so there shouldn't be a tax when death occurs.
Take death out of the equation then. If you own an asset or have a huge bank account, and want to give it to your heirs while alive, you would pay tax then -- in fact, more tax than the current estate tax (first 5 million exempt, then 35%; gift tax exempt amount is about 13K then paid at a rate equal to income tax if I have this correct).
 
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I buy a lot of cabinets from the very best craftsmen in our area. None of them are one man shows if they have plant, equipment and revenue worth $5mil even as valued by an insane IRS agent. When you talk about this guy being able to craft anything, it sounds like Gipetto in his workshop fashioning cabinets one at a time and hand rubbing custom finishes by candlelight, but I don't think that's accurate.

Even if the based the value of the business on 5 times revenue, he would have had to be doing $1mil per year in cabinets. That's an incredible amount for a one man show with a helper or two so when you're talking about a one man show, you're really talking about a guy with 20,000 sq ft and hundreds of thousands of dollars in table saws, planers, presses, moulders, profilers, stripping and sanding booths and finishing buildings. That guy has to have a couple panel trucks a couple crews of installers, salesmen, cad designers and a book keeper.

Even if the picture you're painting is dead accurate, the fact that the business died was not because of the tax. It was because the owner failed to plan for succession. He had no manager in place or family member ready to take over his job. That's the risk of being a one man show. He's the value and he's the person who is key to the business and without him there is nothing, but a collection of tools and equipment surrounded by a bunch of guys looking for someone to tell them what to do.

If those tools and equipment are worth $5mil cash value, then I have no problem taxing the heirs on whatever portion is above the threshold. The father should have planned better.
You miss the point so badly but I'll take the time to point it out.
yes he did plan poorly but does that mean that the IRS should value the business as it stood the day before he died?
 

dtc

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This is really the bottom line. While estate taxes make it harder to pass a business down the line, it's often quite possible to plan properly to significantly reduce/avoid estate taxes. My big beef with estate taxes is that it has been a moving target for several years, as has been income taxes. I really think we need to stop moving the target around so much and settle on a permanent rate and move on to other pressing issues of government. Until this happens, it will be difficult for businesses to make hires and make long term plans. We as a country need to provide a stable business environment to see significant growth down the road.

JMHO.
FYI, I've paid the exact same rate for at least the last 6 or 7 years. I don't think it's moved at all. I also haven't changed what I do based on whether the tax cut expires or not.

But, I will tell you all right here and now that YOU'RE GOING TO DIE. It's inevitable as the tides. Make sure you have enough insurance. Make sure if you're a small business owner that you have a plan. Make sure your spouse has a plan. If you have assets of significant value, you have to have a will and get a living will so your assets can't be plundered by medical bills beyond what you're willing to accept if you're incapacitated. Go visit an estate planner. Fund your Roth and other IRAs.

Plan ahead.
 

dtc

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You miss the point so badly but I'll take the time to point it out.
yes he did plan poorly but does that mean that the IRS should value the business as it stood the day before he died?
No. And, from what I understand, they don't. They value the business as it sits. Valuation is a tough thing, but I don't think your story holds water. If he's a one man show doing enough cabinets by himself that an IRS man could value it at $5mil then he's rich and should have planned better. Clearly, with no employees and expensive overhead, he's been saving for years and should have insurance and an estate transfer plan.

The IRS decision, if inaccurate, can and will be appealed and adjusted, but my point is that in your haste to convince everyone that the "Death Tax" is unfair and oppressive and war against the rich that you've concocted and posed a story about your friends' dad that doesn't hold water.

I don't feel sorry for the heirs who are inheriting $5mil. I'm sorry they lost their friend and relative, but they're getting $5mil. They have an opportunity to learn a business and have a career, but aside from all that, they're way better off than the person who did not just inherit $5mil.

So, the point of your story was to manipulate a scenario that made people feel sad for the poor heirs of the rich guy. My take is they should be mad at the guy who died for his poor planning. The tax is due upon transfer. If you dispute the amount, there are forensic accountants and attorneys who will get that worked out, but since he was such a poor planner in the first place, he probably has no will and the whole thing will end up in probate and eaten up by vultures. That's too bad.

Plan Ahead.
 
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I don't understand the logic of taxing something that was already taxed just because it passes from one person to another. Seems like just another way for the government to reach into your pocket and it comes at a horrible time. I'd prefer we cut services than take away from people dealing with the loss of a loved one no matter how rich they are.
 

dtc

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I don't understand the logic of taxing something that was already taxed just because it passes from one person to another. Seems like just another way for the government to reach into your pocket and it comes at a horrible time. I'd prefer we cut services than take away from people dealing with the loss of a loved one no matter how rich they are.
When you say cut services, are you talking about the military or entitlements like medicare and SS?

Either way, income is income. You pay tax on the same dollar every time it changes hands. Why should you pay a higher tax on a financial gift from your parents when they're alive then when they're dead?
 

SWJJ

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I think the estate tax should be structured differently for Liquid assets than for other types of assets and property. The family farm analogy highlights the problems with the estate tax being so high as it is.

Leaving a financial burden on survivors after a loved one passes due to estate taxes is ******. A family business/farm should be able to continue to operate without these burdens, however a high tax on liquid assets would not cause family businesses to close.

I think middle ground could be found on this issue as both sides have valid arguments and concerns.
 

superchuck500

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An estate over X million dollars subject to tax rates comparable to income tax, but only on the portion inherited by individual heirs.

If someone dies with a hundred million dollar estate, but gives 90 million to charity and splits the remaining 10 million between his 4 kids, then each kid pays a percentage of his share as income tax.

Exclude a family business if it's not being sold/liquidated and one (or some) of the heirs take control of the business.
Often with good estate planning, what they do is create a foundation that, under the tax code, offers advantages such as tax-free administration expenses and the ability to compensate board members. The foundation still has to engage in a certain amount of charitable giving annually, but if the money was going to charity anyway, creating a foundation can benefit the heirs in ways that simple inheritance does not.

Administrative expenses can include real estate, vehicles, utilities, events and travel. The compensation of board members can be significant (though still subject to income tax - spreading it out may reduce total tax liability).
 

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