Estate tax & Trump

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LazyInvestor
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Estate tax & Trump

Post by LazyInvestor » Thu Jan 19, 2017 1:24 am

Does anyone know if there are any expected changes to the estate tax with Trump administration?
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 1:56 am

LazyInvestor wrote:Does anyone know if there are any expected changes to the estate tax with Trump administration?
Trump has said he wants to completely eliminate the estate tax. Of course, this affects only the upper 0.2% of households in the US and creates a relatively permanent plutocratic class so why not?
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Re: Estate tax & Trump

Post by mathjak107 » Thu Jan 19, 2017 3:48 am

it is really some of the the state estate taxes and inheritance taxes that can really be killer and at low levels .
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Re: Estate tax & Trump

Post by LazyInvestor » Thu Jan 19, 2017 3:57 am

I think those in 0.2% have all their money in trusts and similar legal entities so that none of their money is touched by estate tax. I think estate tax hits primarily those who barely made it and probably have not realized yet that they should use some means to protect their money, that is, probably upper middle class and small business owners.

So I think it'd be great if they eliminate it. Anyone knows how long it should take?
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Re: Estate tax & Trump

Post by mathjak107 » Thu Jan 19, 2017 6:12 am

the trusts really only get you 2x the limit. the very very wealthy above 10 million still need other ways .

for many of us the state estate taxes are the bitch .

we had to get two very expensive disclaimer trusts put in place a few years ago . while ny is going up to 5 millon over a series of years there is a tax cliff pitfall.

go over the current years amount by 10% and you don't just pay on the overage. you lose the entire exclusion and are taxed at dollar 1 .

as of last year we cleared the threshold but if assets grow we will need those trusts again . the nice thing is the trusts are transparent and do not exist unless a switch is thrown up to 9 months after the death of one of us.

if the switch is never thrown the trusts do not activate
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Re: Estate tax & Trump

Post by sophie » Thu Jan 19, 2017 8:06 am

Trump's self-interest is showing here just a bit. I'm not sure completely eliminating that estate tax is going to be palatable.

BUT, it would be great if Congress did something about the impact on small businesses. If you're a typical small business owner, the value of the business and/or business properties is what puts you over the top. You don't have that much cash lying around to pay the tax. Unless you plan carefully, the estate tax will wipe out your business, with implications for any employees that may be involved. Note this gives the large corporate chains a big advantage, since corporations don't "die". What would happen if they were subject to an estate-tax equivalent every time they changed owners??
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Re: Estate tax & Trump

Post by pugchief » Thu Jan 19, 2017 11:20 am

LazyInvestor wrote:I think those in 0.2% have all their money in trusts and similar legal entities so that none of their money is touched by estate tax. I think estate tax hits primarily those who barely made it and probably have not realized yet that they should use some means to protect their money, that is, probably upper middle class and small business owners.
Exactly true. If you have several million bucks, you can afford a team of smart lawyers to use loopholes in the laws. Jeez, even we set up trusts when the exemption was really low in the late 90's. One for me and one for the ex-wife, and 2 life insurance trusts. Total cost was under $2500.
LazyInvestor wrote:So I think it'd be great if they eliminate it.
+1
The money has already been taxed. Why should the government tax it again when you die, just because you didn't spend it?
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 6:40 pm

pugchief wrote: The money has already been taxed. Why should the government tax it again when you die, just because you didn't spend it?
Actually, most of the money has NOT been taxed - consisting of unrealized capital gains. See http://americansfortaxfairness.org/tax- ... tance-tax/

The notion that estate tax affects small business owners and family farms is mostly BS as well, see http://www.taxpolicycenter.org/briefing ... estate-tax
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Re: Estate tax & Trump

Post by I Shrugged » Thu Jan 19, 2017 7:18 pm

Rick, the points at those links can be summed up as:

1. He/she has a lot of money,
2. Give it to me,
3. Or else.

All of the whys and wherefores are rationalizations for the above sentiments.

It always struck me as informative that even most ordinary people consider the estate tax to be distasteful, for lack of a better word. Even looking at someone like say Bill Gates, I don't find that most people think the rest of us are entitled to whatever percent of his wealth upon his and Melinda's death.

But as mentioned above, the super rich don't pay estate taxes anyway. They establish foundations, shelter the money there, and so provide jobs and wealth for their heirs. Hopefully they do some good, but that's always in the eye of the beholder. The estate tax has created an industry of planning, trusts, lawyers, trustees, accountants, insurance agents, all sorts of things that are economic friction.

IMO the estate tax is a political symbol more than anything. It will always exist because it serves the political interests of Democrats and the financial interests of the planning industry. It's a racket.

Trump starts every negotiation from an extreme position. Such as killing the estate tax.
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 10:32 pm

I Shrugged wrote: It always struck me as informative that even most ordinary people consider the estate tax to be distasteful, for lack of a better word. Even looking at someone like say Bill Gates, I don't find that most people think the rest of us are entitled to whatever percent of his wealth upon his and Melinda's death.
Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes. Without the estate tax, what happens when he & Melinda die is this stock goes to his heirs who, for tax purposes, receive what's called a "stepped up" basis which is the value of the stock when he and she die, rather than whatever the original cost basis of the stock was. What this means is that roughly $80B comes into the hands of his heirs without ever being subject to any kind of tax whatsoever (not taxed twice, not even taxed once).

I find this distasteful.
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Re: Estate tax & Trump

Post by Pointedstick » Thu Jan 19, 2017 10:46 pm

rickb wrote:Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes.
Is that true? Every time I've receive stock compensation I've had to pay taxes on the shares.

Also, isn't Gates' $80B currently eradicating disease in Africa? He's hardly the posterboy for useless fatcat plutocrats.
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 11:39 pm

Pointedstick wrote:
rickb wrote:Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes.
Is that true? Every time I've receive stock compensation I've had to pay taxes on the shares.

Also, isn't Gates' $80B currently eradicating disease in Africa? He's hardly the posterboy for useless fatcat plutocrats.
I'm not saying Gates is not doing anything good with his money. That's a completely separate (and irrelevant) point.

Re taxes. As a founder of Microsoft he presumably had lots of shares as the original owner which I'm surmising is the bulk of his net worth. I suspect you're talking about options which he may or may not have also received. When you exercise options you're buying at the option strike price which becomes the basis price and when you sell (which may be the same time you exercise the option but doesn't have to be) you pay taxes on the difference between the option strike price and the sell price. If you exercise options and don't sell (ever), you effectively buy the stock at the option strike price and then your heirs get the stepped up basis price as of when you die. This completely avoids any capital gains tax on the options.

For Gates, I'd be willing bet that at least $50B of his net worth consists of capital gains in Microsoft stock that has never been taxed. I suspect the actual amount is closer to $80B.
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