US inheritance taxes

[ERICOPOLY]

I think if you want to give your child some money without taking away any motivation, offer to reimburse them for their tax bill.

 

They pay no tax and therefore get no money from you if they do not get a job.  They get little money if they choose to work 3 nights a week as a ski bum.  However if they choose to work full time the extra money gets them a vacation, daycare for their kids, etc...

[Myth465]

I think you are looking at the Inheritance tax in a very one sided way. I plan to die with some cash and would prefer to live in a society where obscene wealth isnt simply passed down over hundreds of years.

[sswan11]

Aside from inheritance tax, aren't Australian margin income tax rates quite high? (they certainly are in Europe).  I'm amazed they don't apply to dividend/interest income.

[ERICOPOLY]

I think you are looking at the Inheritance tax in a very one sided way. I plan to die with some cash and would prefer to live in a society where obscene wealth isnt simply passed down over hundreds of years.

 

Suppose I'm not married but I have 4 kids.  I can only leave them $875,000 each next year before inheritance taxes kick in.

 

That's not the kind of obscene wealth you are talking about is it?

[ERICOPOLY]

Aside from inheritance tax, aren't Australian margin income tax rates quite high? (they certainly are in Europe).  I'm amazed they don't apply to dividend/interest income.

 

They have a dividend franking system.  My cousin informed me that if you own Australian shares and receive a fully franked dividend, then your tax rate will only be 9%.

 

A fully franked dividend is one that is paid out of a corporation's already-taxed earnings.

 

They don't believe in double taxation of dividends, and rightly so in my opinion.

[Myth465]

The law wasnt meant to take into account kids. For most people being taxed on amounts that exceed $3.5 million or $7 million is a nice problem to have.

 

You get to exclude $3.5 million or $7 million and leave it to who every you want. After that the rest is taxed at an appropriate rate. Uncles, Cousins, Cats, Brothers, and Kids arent taken into account. I know you dont feel rich with $3.5 million and I wouldnt either but the fact of the matter is you would be. We can argue about the appropriate cut off. But I think its a good thing for our society.

 

http://www.taxpolicycenter.org/briefing-book/key-elements/estate/who.cfm

 

# TPC estimates that 14,900 individuals dying in 2009 will leave estates large enough to require filing an estate tax return (gross estates under $3.5 million need not file a return in 2009). After allowing for deductions and credits, 5,500 estates will owe tax. Three-quarters of these taxable estates will come from the top ten percent of income earners and over one-third will come from the top one percent (see table).

 

Very few people pay this tax and if you do. Then you are very lucky from a societal standpoint inmo.

 

Winston Churchill argued that estate taxes are “a certain corrective against the development of a race of idle rich”.

 

The tax hit 5500 people last year. I just don't see it as the scruge that is destroying our capitalist society that some paint it to be.

 

[JAllen]

I'm personally not very scared by dynastic wealth.  The third generations are usually dried up "ski-bums".  Either people come around and are decent people (Senator Rockefeller as an example)or yes they are ski or beach bums (the only other Rockefeller that I'm familiar with is a beach bum). Most of the time by the third generation the wealth gets divided by the simple fact of it being divided by 2.5 every generation and they start bickering (think Pritzkers or Bancrofts).

 

I think the unethical earning of income in the first place should be the focus (Joe Kennedy, Rockefeller Sr.) but after a while some of them shape up (whether or not you agree with their politics or not- and I'm not a democrat although I've mentioned a few).

 

I remember reading that there wasn't a Vanderbilt with a million dollars 50 years after Cornelius died with 100 of them. 

 

Carlos Slim is scary but I'm not Mexican. 

 

Few families are successively good with money: at least not good enough to start to really be able to screw with a large portion of our economy, IMO.

 

 

[ERICOPOLY]

The tax hit 5500 people last year.

 

I think the number is understated.  You are not taking into account all the people who drastically reduce their taxable estates by all kinds of crafty means (which is extremely wasteful by the way if you consider all the legal advisers and estate planners you have to pay).  

 

It does not include the people who give money into a trust.  You can give $1m into the trust under the gift tax exemption (it reduces your estate tax exclusions but if you give it early then it will grow big outside of your estate to save a huge tax bill later) and then give another $52k a year (if you have 2 kids) free of gift taxes.

 

My beef is that I don't want to give up control of the money before I know how the kids will turn out, and I'd rather keep it a secret until my dying day.  But the tax code incentives us to turn the children into a bunch of spoiled bums who find out too early how much is in their trust.

 

You are concerned about people getting a horrendous amount of money and lazing around making everybody else feel like the slaves of a dynasty.  But that's completely ridiculous to worry about when somebody is only inheriting $850k.  It's not how big the estate is that matters, it's how much each individual person inherits that matters.  Put it this way, if I give a $10m estate to 20 people (I have 17 cousins for example) what's the worry about a dynasty?  

 

$500k dynasty... woo hoo!  I could just see the new TV show, ghetto style edition.  A bunch of middle aged cousins of mine with fancy $500k townhouses acting like they rule the world.

 

 

[Myth465]

Seems like you want tax law designed specially for your purposes. Which is fair enough. You can give $13,000 a year to each kid each year tax free for your entire life per spouse but don't want to. That's $26,000 each year per kid.

 

There are a million ways around the rule. All sorts of loopholes and trust structures available, the one thing you cant do is control the assets until the day you die and then give 1 lump sum. You basically want a loop pole put in because you don't want your kids to know about the money, and you want a way out should your kids turn into annoying brats or idiots. Far enough, but that's a hard law to customize / anticipate.

 

As far as the resources spent to avoid taxes, that's the nature of taxes. When I did taxes the first thing my trainer told me is a man will spend $10,000 to save $5,000 in taxes. The only way to get rid of this waste is to get rid of the taxes (I know some of you guys will say a flat tax, but answer this question in 1 sentence - What is income, and what are expenses - Half the tax code answers this and the other half is exceptions, exclusions, and incentives).

 

Laws are made and then we use them to our advantage. Why do people sell loses in December and buy back 30 days later in Jan. Why are entire transactions booked in retardedly complex ways, to avoid taxes or move around laws.

 

No matter what number you set someone will think its too low or there arent the proper exemptions. At $10,000,000 and 5 families. Those 5 families will be up in arms. I agree with the spirit of the law. Even if families loose the money at some point, I dont think they deserve 100% of it in the first place.

 

 

[ERICOPOLY]

Seems like you want tax law designed specially for your purposes. Which is fair enough. You can give $13,000 a year to each kid each year tax free for your entire life per spouse but don't want to. That's $26,000 each year per kid.

 

There are a million ways around the rule. All sorts of loopholes and trust structures available, the one thing you cant do is control the assets until the day you die and then give 1 lump sum. You basically want a loop pole put in because you don't want your kids to know about the money, and you want a way out should your kids turn into annoying brats or idiots. Far enough, but that's a hard law to customize / anticipate.

 

As far as the resources spent to avoid taxes, that's the nature of taxes. When I did taxes the first thing my trainer told me is a man will spend $10,000 to save $5,000 in taxes. The only way to get rid of this waste is to get rid of the taxes (I know some of you guys will say a flat tax, but answer this question in 1 sentence - What is income, and what are expenses - Half the tax code answers this and the other half is exceptions, exclusions, and incentives).

 

Laws are made and then we use them to our advantage. Why do people sell loses in December and buy back 30 days later in Jan. Why are entire transactions booked in retardedly complex ways, to avoid taxes or move around laws.

 

No matter what number you set someone will think its too low or there arent the proper exemptions. At $10,000,000 and 5 families. Those 5 families will be up in arms. I agree with the spirit of the law. Even if families loose the money at some point, I dont think they deserve 100% of it in the first place.

 

 

 

 

I haven't checked, but don't you think that public universities (using tax dollars) are teaching courses to prepare young people for careers in estate tax planning?  Publicly provided education for the very purpose of helping the dynasties avoid this very tax!

 

Like I said, I haven't checked... but I figure it's probably the case.  Tax money well spent.  And think of all the bright minds employed in these careers that could instead have been doing something productive for society?

 

 

[Rabbitisrich]

I didn't read the whole thread so I can only comment on the last page.

 

Ericopoly, you can establish a Grantor Retained Annuity Trust (GRAT) which allows you to control the assets and to break the trust prior to transference. The kicker is that the trust automatically breaks should you die before you bestow the assets. Any gains above the applicable midterm federal rate transfer gift tax free.

 

If you are concerned about the character of your brood, why don't you try lending them money? It's a good way to administer a test and to provide a lesson. Current AFRs range from <1% short term to <5% long term.

[Myth465]

I didn't read the whole thread so I can only comment on the last page.

 

Ericopoly, you can establish a Grantor Retained Annuity Trust (GRAT) which allows you to control the assets and to break the trust prior to transference. The kicker is that the trust automatically breaks should you die before you bestow the assets. Any gains above the applicable midterm federal rate transfer gift tax free.

 

If you are concerned about the character of your brood, why don't you try lending them money? It's a good way to administer a test and to provide a lesson. Current AFRs range from <1% short term to <5% long term.

 

Tax avoidance is a useful goal its evasion thats problematic and for now we need all the jobs we can get. Lol.

 

Looks like Rabbit has a good answer, honestly I hope to share in your complaints / problems in a few years. For now they dont apply to me.

[Rabbitisrich]

Sorry, I'm wrong. GRATs are irrevocable so you can't cancel the transfer. You might be able to effectively quelch a GRAT through a process called regratting: http://online.wsj.com/article/SB124147213290384703.html. I don't know if you need permission from the beneficiaries, but you might be able to regrat with a high annuity fee that results in the paydown of principal.

 

 

[ERICOPOLY]

I didn't read the whole thread so I can only comment on the last page.

 

Ericopoly, you can establish a Grantor Retained Annuity Trust (GRAT) which allows you to control the assets and to break the trust prior to transference. The kicker is that the trust automatically breaks should you die before you bestow the assets. Any gains above the applicable midterm federal rate transfer gift tax free.

 

If you are concerned about the character of your brood, why don't you try lending them money? It's a good way to administer a test and to provide a lesson. Current AFRs range from <1% short term to <5% long term.

 

 

It's a complete waste of societal resources for smart people to be concocting these schemes.  What's with this country?  We are paying one person (a tax collector) to collect a tax that our legislators have created, and then we have the very same legislative body creating a crafty tax code that provides for rich people to help them get around the traps.

 

This is just appeasement so that the ignorant masses believe the rich are being taken to the woodshed.  If the rich plan it right, when they get behind the woodshed it becomes clear that it's just a facade and really there is a picnic table with a punchbowl. 

 

This is obvious based on how few people actually pay the tax.  Either get serious about actually collecting it or just abolish it. 

 

Australia has no tax on this stuff and it's a vastly friendlier society.  So I'm dubious of the theory that decay and ruin would soon follow if we abolished the tax here.  In January I called up the Warringah council (Sydney) when my garbage can wasn't picked up from the curb, they apologized and arranged for the truck to come back on a special pickup the next day... just for me!  I suppose I could try it out here but in my experience it wouldn't be worth the bother of asking.

[sswan11]

record # of US citizens renouncing due to taxes, but there's an exit tax:

 

To leave America you generally must prove 5 years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $155,000 or more (that’s tax, not income), you pay an exit tax. It is a capital gain tax as if you sold your property when you left. At least there’s an exemption of $680,000. Long-term residents giving up a Green Card can be required to pay the tax too. See High Cost To Go Green: Giving Up A Green Card.

 

http://www.forbes.com/sites/robertwood/2014/08/07/many-americans-renounce-citizenship-hitting-new-record/?google_editors_picks=true

[warrior]

In Canada like many countries in the world  ,taxes based on residency  status. For instance, if one decides to became non -resident ( to be out of Country for more than  6 month and have no financial and residential ties) ,he/she  still will remain to be  a Canadian citizen. Hence, it will trigger deem disposition on all one's property, including real estate , investment etc... 25% withholding tax applies for registered  plans- depend on the province . In some cases it makes sense to become non -resident in Canada.

I think that the U.S. is the only country that requires its citizens to file a tax return and report their worldwide income, no matter where in the world they might live and regardless of whether they hold another country’s citizenship.

 

[leftcoast]

I think that the U.S. is the only country that requires its citizens to file a tax return and report their worldwide income, no matter where in the world they might live and regardless of whether they hold another country’s citizenship.

 

Almost. The only other country is Eritrea.

[leftcoast]

Some more in-depth articles on why so many Americans abroad are choosing to renounce their US citizenship:

 

Wall Street Journal: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

Vancouver Sun: U.S. tax law intended to nab billionaires who hide money in tax shelters is terrorizing middle-class dual citizens with no income south of the border

 

 

[Aberhound]

I think if you want to give your child some money without taking away any motivation, offer to reimburse them for their tax bill.

 

They pay no tax and therefore get no money from you if they do not get a job.  They get little money if they choose to work 3 nights a week as a ski bum.  However if they choose to work full time the extra money gets them a vacation, daycare for their kids, etc...

 

+1

[Hielko]

I think if you want to give your child some money without taking away any motivation, offer to reimburse them for their tax bill.

 

They pay no tax and therefore get no money from you if they do not get a job.  They get little money if they choose to work 3 nights a week as a ski bum.  However if they choose to work full time the extra money gets them a vacation, daycare for their kids, etc...

So you want to measure what your kids achieve and how you value them based on how much money they earn? Really? You prefer to have the next Sadar Biglari as a son as opposed to the next mother Theresa as a daughter? Or just to pay a son more than a daughter because women earn statistically speaking less than men?

[ERICOPOLY]

I think if you want to give your child some money without taking away any motivation, offer to reimburse them for their tax bill.

 

They pay no tax and therefore get no money from you if they do not get a job.  They get little money if they choose to work 3 nights a week as a ski bum.  However if they choose to work full time the extra money gets them a vacation, daycare for their kids, etc...

So you want to measure what your kids achieve and how you value them based on how much money they earn? Really? You prefer to have the next Sadar Biglari as a son as opposed to the next mother Theresa as a daughter? Or just to pay a son more than a daughter because women earn statistically speaking less than men?

 

Wow.  Spin doctor, can you at least provide some lubricant -- you're chafing me.

 

I want them to fit in with their peer group.  I don't want to shower them with riches, for example, if their peers may feel envious.

 

You believe that Sardar would stop being hungry if you paid him more?  Me, I think he would just want more.  You can't stop Sardar from being Sardar just by throwing more money at him.

[Hielko]

Sorry! I understand your goal, but trying to create an incentive can very easily have many unwanted side effects. My tip: never tell them/anyone else how much money you have, and tell them that you intent to spend it all before you die anyway.

 

I want them to fit in with their peer group.  I don't want to shower them with riches, for example, if their peers may feel envious.

You control what the peer group is anyway. Put them in some high-end private school and showering them with riches might be perfectly normal in that kind of enviroment. Might not result in kids you like...

 

You believe that Sardar would stop being hungry if you paid him more?  Me, I think he would just want more.  You can't stop Sardar from being Sardar just by throwing more money at him.

Absolutely not, I think he would only get worse. That's why you don't want to create an incentive that is purely based on how much they earn.

[ERICOPOLY]

My tip: never tell them/anyone else how much money you have, and tell them that you intent to spend it all before you die anyway.

 

I like the idea of telling them that they will just have to live on what they earn.  Later, perhaps when they are 40 surprise them by paying off their mortgage.  Something that doesn't ruin them too much but makes life more comfortable.  That was the spirit of the tax idea.

 

The reason being that if you try to hide your money and pretend like you don't have any, but you live in Montecito, their imaginations will perhaps overestimate what you really have.  No, I won't tell them what I have, but I think it's going to be hard to pretend there will be nothing left for them.

 

 

You control what the peer group is anyway. Put them in some high-end private school and showering them with riches might be perfectly normal in that kind of enviroment. Might not result in kids you like...

 

They currently go to public school, but Montecito Union Elementary is different from most public schools... example, one of my kids was in class with Don Johnson's son and I actually backed into him at the 2nd grade fair.  Pretty funny.  So it's not normal.  However there are a lot of families who are much more modest in means -- they rent tiny houses near the freeway just to be in the school district.  They'll move to a more affordable area once the kids finish the public school.  So we meet some pretty down-to-earth families and that's who our kids play with at our BBQs and whatnot.  Not the super-high-rollers.

 

 

You believe that Sardar would stop being hungry if you paid him more?  Me, I think he would just want more.  You can't stop Sardar from being Sardar just by throwing more money at him.

Absolutely not, I think he would only get worse. That's why you don't want to create an incentive that is purely based on how much they earn.

 

I'm going to encourage them to pursue what they want to do in life, but unfortunately society has already provided the incentives.  Careers are paid very differently -- I can't change that.  Society says a banker has more value than an educator.  It is what it is.  I'm not sure I have the power to change that while at the same time telling them they'll get nothing.  Difficult dilemma -- although perhaps I should be raising them in Australia where pay is more equal.