by GarySpicuzza » Sat Nov 01, 2008 12:13 pm
I have *ambivalent feelings towards the USA Federal Estate Transfer Tax System.
On one hand, Sock-it-to-'em Obama, is right...spread the wealth...he's a lawyer, so he just figures go get yourself an A-B Trust along with your Irrevocable Life Insurance Trust, buy an expensive Second-to-Die policy from Gary and your family will be A-Okay and the Gubment gets their money.
On the other hand, it's rather disgusting that the event that gave rise to the Gubment claiming and demanding up to 55% of your entire Estate is the fact Mom or Dad simply died.
There is an unlimited marital deduction for all amounts one spouse leaves to the other, as long as the inheriting spouse is a US citizen. So estate taxes aren't an issue when one spouse dies and leaves most of the estate to the other. A problem can arise when the second spouse dies and the estate goes to children or other relatives or friends. If the separate estate for each spouse is below the tax minimum, but the combined estates would be over the minimum, the estate might have to pay extensive taxes when the second spouse dies.
The first spouse can avoid this by establishing a tax by-pass Trust at his/her death to hold property for children or other Beneficiaries at the death of the second spouse. While the second spouse is still alive the Trust assets will be used to provide for the surviving spouse. At the death of the second spouse the Trust assets will be distributed to the named Beneficiaries. Because the second spouse never owned the assets in the Trust, those assets don't become part of the second spouse's estate for purposes of calculating Federal Estate Taxes.
*ambivalent
The coexistence within an individual of positive and negative feelings toward the same person, object, or action, simultaneously drawing him or her in opposite directions.
On one hand, Sock-it-to-'em Obama, is right...spread the wealth...he's a lawyer, so he just figures go get yourself an A-B Trust along with your Irrevocable Life Insurance Trust, buy an expensive Second-to-Die policy from Gary and your family will be A-Okay and the Gubment gets their money.
On the other hand, it's rather disgusting that the event that gave rise to the Gubment claiming and demanding up to 55% of your entire Estate is the fact Mom or Dad simply died.
There is an unlimited marital deduction for all amounts one spouse leaves to the other, as long as the inheriting spouse is a US citizen. So estate taxes aren't an issue when one spouse dies and leaves most of the estate to the other. A problem can arise when the second spouse dies and the estate goes to children or other relatives or friends. If the separate estate for each spouse is below the tax minimum, but the combined estates would be over the minimum, the estate might have to pay extensive taxes when the second spouse dies.
The first spouse can avoid this by establishing a tax by-pass Trust at his/her death to hold property for children or other Beneficiaries at the death of the second spouse. While the second spouse is still alive the Trust assets will be used to provide for the surviving spouse. At the death of the second spouse the Trust assets will be distributed to the named Beneficiaries. Because the second spouse never owned the assets in the Trust, those assets don't become part of the second spouse's estate for purposes of calculating Federal Estate Taxes.
*ambivalent
The coexistence within an individual of positive and negative feelings toward the same person, object, or action, simultaneously drawing him or her in opposite directions.
Posted: Sat Nov 01, 2008 11:42 pm Post Subject:
Wow this is a great post GAry. I never relized just how much tax they add to a gift. I am wondering to myself how this tax even came about (I know government). I can not see how it is lawful to take over half (55%) and wonder how something like this was even passed. When it is over $3,000,000 is the 55% before or after they take the first amount of $1,290,800? I can think of some worthy charities that could use this money more than the goverment.
Posted: Sun Nov 02, 2008 01:15 pm Post Subject:
fireyone, thank you for asking:
When it is over $3,000,000 is the 55% before or after they take the first amount of $1,290,800?
When Obama and Biden are taking about the "Bush" tax cuts to the wealthiest Americans the above is what's being referenced.
Effective January 1st 2011 the Federal Estate Transfer Tax exemption will go to $1,000,000 million dollars per person. Down from $3.5 million in 2009 and repealed for one year in 2010. Gates and Buffet need to mark their calendar to escape taxes.... but not death!
A DECEASED person's children with a $4 million dollar estate would owe the USA government $1,290,800 just because Mom or Dad died. And yes, PLUS 55% on any amount above the $3 million dollar level.
The Federal Government's CRIME here is that just because someone may have a total estate worth $4 million it's not all in cash, most of it would be a business valuation, their home, IRA or 401k and life insurance benefits are ADDED back into a person's estate for the purpose of calculating Federal Estate Transfer Taxes.
Bear in mind when you are looking at that tax chart above the first $1,000,000 is EXEMPT so the chart is showing the amount of tax due after the $1,000,000 level.
Now also keep in mind that whatever a person has in assets when they die has already been taxed 6 ways to Sunday, yet, the govenment wants more tax because you died.
The dirty little Obama-Biden secret is:
It's "when the second spouse dies."
To be fair:
McCain't will also let EGTRRA 2001 sunset.
He'll just blame Congress for not making it permanent.
Posted: Sun Nov 02, 2008 03:18 pm Post Subject:
No Gary Thank You for explaining.
This is being hogish. You are right we are a nation that is over taxed and I really have just seen by your charts just how unfair these taxes are. I honestly have been leaning more towards Mc Cain as of recently. I usually don't even get into politics. Now...bare with me because I am learning here...Why is 2010 so much different than 2011 where it jumps from appealed to 55%.? Alos doesn't any Americans have a say in this besides voting for a president? Looking at the numbers it really looks like highway robbery.
Posted: Sun Nov 02, 2008 05:58 pm Post Subject:
Why is 2010 so much different than 2011 where it jumps from [repealed] to 55%.?
Four words:
Poli-Tic-Bass-Towards.
In our discussion a person with a $4 million dollar estate who dies on December 31st 2010 owes nothing in Federal Estate Transfer Taxes.
If that same person hangs on to life for just one more day and dies January 1st 2011 his family owes the Gubment $1,290,800 in cash 9 months from the date of death.
But, NOT - SO - FAST, they replace the step-up in basis with the carry-over basis for one year just to completely screw things up. So if you're not getting slammed with estate taxes they'll make sure you pay with capital gains taxes.
Now as outlined above there are techniques to mitigate this but that involves enriching, lawyers, insurance companies, CPAs, insurance agents and other financial advisors.
Also doesn't any Americans have a say in this besides voting for a president?
Not really. Remember it's the Congress who passes these laws with the blessing of the President. I'm quite certain the attitude in Washington would be if you're smart enough to have that much success you should be smart enough to find a lawyer or other financial advisor who can show you the hoops you must jump through to pass your estate intact to your heirs.
See THIS LINK.
Under the Tax Relief Act, this step-up in basis changes in 2010: Along with your appreciated assets, your heirs will inherit your original (carryover) basis, increased by a maximum of $1.3 million. That could result in higher capital gains taxes when they sell the assets. But then in 2011 the full step-up in basis returns.
Posted: Mon Nov 03, 2008 10:59 am Post Subject:
I see what you mean about the Wshington attitude and I'm sure most who reach that success probaly is smart enough to figure it out. I think you yax by pass idea is really a good one. I tell you Gary I get upset with Washington quite a bit but you sure gave me another reason to justify just why I feel this way. Thanks for taking the time and answering my quaestions and explaining.
Posted: Thu Nov 06, 2008 04:52 pm Post Subject:
Gary,
Great series of posts. Very informative and easy to understand. You actually could have gone off into some of the different types of trusts and really threw everyone off. I'm glad you didn't. This was good
Posted: Fri Nov 07, 2008 12:54 am Post Subject:
Yes Gary is rather good at showing us common people how things work and calling our attention to these types of matters. He is definatley one of the members who aren't afraid to explain things and doesn't mind questions. Thanks Gary.
Posted: Fri Nov 07, 2008 04:37 am Post Subject:
"Us common people?"
Posted: Fri Nov 07, 2008 06:54 pm Post Subject:
Wow, thanks fireyone!
I usually get banned from message boards for simply posting facts.
By the way, I was at the lawyers office this morning with a client and we both agree an Obama administration will be an absolute boom for the establishment of A-B Trusts and Irrevocable Life Insurance Trusts funded with Second-to-Die policies.
Posted: Fri Nov 07, 2008 10:34 pm Post Subject:
Ins. Ivestigator, I was talking about people like me who don't quite understands things like this unless someone like Gary lays it out for me. I am quite interested in these types of things but never knew hpw to make heads or tails out of any of it.
Gary, I can not imagine why you would be banned for trying to help people see the real picture. The last one was truly quite easy for me to get (understand). I appreciate all your facts.
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