Estate Taxes

[Conagher]

I did not want to hi-jack the other post but thought this is an interesting topic.

At the top-level, estate taxes appear to be a bad thing - death tax. However, digging a little deeper makes you think.

I believe Congress adopted the estate tax in 1916 as a way to "break up the swollen fortunes of the rich". Steel magnate Andrew Carnegie put it this way a century ago, "The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

Some more information:
"The family farmer is the poster child of the anti-estate-tax movement, but the truth is that less than one in 20 farmers leaves a taxable estate.Even for the small number of farm estates that do pay any tax, the typical tax payment is only about $5,000. Only 0.5% of total estate taxes is attributable to farm assets. Non-farm family businesses are also only a small part of the estate tax --less than 3% of total assets for estates worth less than $2.5 million."

Interesting. Applying to my own situation, the land I bought was for sale to settle an estate; otherwise this land may have stayed in the same family. It was highly unimproved, overgrown, idle, neglected and unproductive. Because of the estate settlement and my purchase, it is now a productive ranch. How many of you own productive ranches that were purchased because of estate settlement?

 

[Frankie]

Our place is family property. I grew up on it and was able to buy their portion from my two sisters. By putting the land into her children's names and setting her investments up as joint accounts, my mother didn't leave an estate large enough to be taxable. There are many ways to avoid those taxes.

I thought it was funny one year when we heard a hog farmer (I think from Nebraska) telling us that the "family farm" was doomed if we didn't get that estate tax repealed. His farm had grown to supporting him, three sons, a daughter and their families. He was hoping that he could continue to grow and his grandchildren could stay on the "family farm." I don't know a lot about hog farming, but I'd think to get to the size that it can support five families, some other people's "family farms" were bought out.

 

[lakading]

Our place is family property. I grew up on it and was able to buy their portion from my two sisters. By putting the land into her children's names and setting her investments up as joint accounts, my mother didn't leave an estate large enough to be taxable. There are many ways to avoid those taxes.

I thought it was funny one year when we heard a hog farmer (I think from Nebraska) telling us that the "family farm" was doomed if we didn't get that estate tax repealed. His farm had grown to supporting him, three sons, a daughter and their families. He was hoping that he could continue to grow and his grandchildren could stay on the "family farm." I don't know a lot about hog farming, but I'd think to get to the size that it can support five families, some other people's "family farms" were bought out.

So? It is still a family operation. Those who were bought out could have sold for a variety of reasons. Estate taxes are rediculous. If nothing else, they should permanantly raise the exemption to at least $5 million per individual.

 

[jkwilson]

So it's the government's responsibility to take the wealth away from the people? If I work all my life and actually accumulate some money, the government's responsibility is to take it away from my kids. That is some very strange logic.

 

[lakading]

So it's the government's responsibility to take the wealth away from the people? If I work all my life and actually accumulate some money, the government's responsibility is to take it away from my kids. That is some very strange logic.

Amen.

Especially when you've aleady paid income taxes along the way.

 

[milesvb]

If Andrew Carnegie, Bill Gates, Warren Buffett or whoever doesn't want to leave anything to their kids then fine, but they don't have any business telling the rest of us how to distribute our estates upon death and neither should the government.

 

[rgv]

As the poster above stated -

It just boils me that yes - this person pays taxes on every dollar of income - 20-40 percent maybe - then the Goverment thinks they deserve another chunk because you died?

Just like buying a used car & having to pay sales tax on it.
It already has been taxed when it was new.

Grumble Grumble etc etc

RGV

 

[ollie']

I believe Congress adopted the estate tax in 1916 as a way to "break up the swollen fortunes of the rich". Steel magnate Andrew Carnegie put it this way a century ago, "The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

I assure you the government didn't invent the estate tax to give the rest of us a chance . They came up with it to make more money, just like every tax. If you wait long enough , every family will leave it to a generation that can't take care of it and the money will be redistributed into the population.

 

[Conagher]

If Andrew Carnegie, Bill Gates, Warren Buffett or whoever doesn't want to leave anything to their kids then fine, but they don't have any business telling the rest of us how to distribute our estates upon death and neither should the government.

Understand your point, and agree with it. However, think about this: Assume those three pulled their resources and bought up all the available land and passed it on to only their families, effectively creating "blue-bloods". Only thing available to your decesendents would be what you currently have, no opportunity to expand because the "blue-bloods" have it all. Despite how much land you currently have, it would only take a few generations of parceling to effectively negate ownership for farming/ranching purposes.

 

[rk]

I know many farmers and ranchers who invested in land, buildings, etc. rather than "traditional" investments like stocks and other financials. These folks grow old and retire without much money, but with the desire to pass on the family operation with all the improvements they've made to it to next generation.
Becoming involved in production agriculture today usually requires a staggering investment, just to make a decent living. Without the opportunity for young people to pick up where the previous generation "left off" without huge estate tax liability, who's going to feed us in the future???????

 

[Bez!]

I believe Congress adopted the estate tax in 1916 as a way to "break up the swollen fortunes of the rich". Steel magnate Andrew Carnegie put it this way a century ago, "The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

I assure you the government didn't invent the estate tax to give the rest of us a chance . They came up with it to make more money, just like every tax. If you wait long enough , every family will leave it to a generation that can't take care of it and the money will be redistributed into the population.

Interesting comment ollie'.

First generation works and makes it.

Passes it to the next generation who enjoy it.

They in turn pass it to the third generation who squander it.

Not 100% true, but right up there according to my accounting buddy and his investment guy.

Gov taxes it all and gives it to those who are "deemed worthy".

Now, if I could just be the second generation!

Bez!

 

[andybob]

Is there any way to register the farm with all assets as a company, then the family members are shareholders not owners so the property is then not liable for taxation upon the death of a shareholder?
Sorry if this is a stupid question, I am not yet familiar with American tax laws.

 

[lukelangford]

How many productive family farms have busted up into hobby farms, play ranches, pine tree farms or subdivisions due to estate taxes. I have seen more farm land lost to CRP pine trees than a Carnegie or Gates. And you wonder why my generation (i'm 24) is practically non-existent in the farming industry? There's no point. I don't know anybody in it because of the easy pay and lots of time off.

For those inclined to think that there are estate planning methods to work around this, I welcome suggestions on how to save my farm. A limited family partnership allows gifting $11,000 a year to aviod estate taxes. That's a drop in the bucket in florida real estate. The tax rate above the current 1.3mm limit is roughly 36%. I won't be able to pay the bill and have enough acreage left over to make a living. The result is another busted farm, and here in florida, another 5 houses per acre. Only in America, right?

 

[lakading]

How many productive family farms have busted up into hobby farms, play ranches, pine tree farms or subdivisions due to estate taxes. I have seen more farm land lost to CRP pine trees than a Carnegie or Gates. And you wonder why my generation (i'm 24) is practically non-existent in the farming industry? There's no point. I don't know anybody in it because of the easy pay and lots of time off.

For those inclined to think that there are estate planning methods to work around this, I welcome suggestions on how to save my farm. A limited family partnership allows gifting $11,000 a year to aviod estate taxes. That's a drop in the bucket in florida real estate. The tax rate above the current 1.3mm limit is roughly 36%. I won't be able to pay the bill and have enough acreage left over to make a living. The result is another busted farm, and here in florida, another 5 houses per acre. Only in America, right?

Family Limited Partnership (FLP). Those gifting to the FLP could also use their lifetime gift exemption. I think it is $1 million per individual, but don't quote me on it. Seek the advice of a Certified Financial Planner that specializes in Estate Planning. Let the attorneys handle the leagal stuff, but get the advice from an advisor.

 

[norriscathy]

Bez is absolutely right. Seen a lot of trusts and estates. The bank trust officers and I have always believed that some kind of genetic deformity set in with the third generation! As far as redistribution of wealth, forget about Estate Taxes; your grandchildern will blow everything anyway!

 

[Central Fl Cracker]

Is there any way to register the farm with all assets as a company, then the family members are shareholders not owners so the property is then not liable for taxation upon the death of a shareholder?
Sorry if this is a stupid question, I am not yet familiar with American tax laws.

When my father in law died the family put all assets in a corporation and dole out stock to the daughters and kids each year. When my mother in law dies the corporation dissolves and there is no inhertinance(sp?) tax.

 

[lakading]

Is there any way to register the farm with all assets as a company, then the family members are shareholders not owners so the property is then not liable for taxation upon the death of a shareholder?
Sorry if this is a stupid question, I am not yet familiar with American tax laws.

When my father in law died the family put all assets in a corporation and dole out stock to the daughters and kids each year. When my mother in law dies the corporation dissolves and there is no inhertinance(sp?) tax.

I assume that you mean your mother-in-law inherited all of your father-in-laws assets and then formed the corporation. If anyone other than the spouse was the beneficiary, they still would have had to pay estate taxes.

As for the first comment. The answer is NO. The shares of stock are an asset. All assets not left to a surviving spouse or a charity are subject to estate tax.

 

[norriscathy]

Is there any way to register the farm with all assets as a company, then the family members are shareholders not owners so the property is then not liable for taxation upon the death of a shareholder?
Sorry if this is a stupid question, I am not yet familiar with American tax laws.

When my father in law died the family put all assets in a corporation and dole out stock to the daughters and kids each year. When my mother in law dies the corporation dissolves and there is no inhertinance(sp?) tax.

Don't think so Cracker! You'd better get someone to check it out very, very closely! Two problems: 1) there is an unlimited martial deduction and no tax on items left to a spouse; however, when the spouse dies her heirs will have to pay estate taxes on her estate. 2)the rules you're citing on corporate liquidations is very old law. When a corportion now distributes assets it must pay taxes on the gain resulting from the difference in the tax basis anf the fair market value of the assets. The tax laws are constantly changing (every week actually) and any estate plan more than a year or so old is worthless.

 

[grumpy]

I apparently don't understand this very well and I am hoping that somebody will clear this up. How much tax was been paid on the appreciation of the assets (land and improvements) during the deceaseds life? Using current estate planning strategy (and I don't think the strategies are worthless at a week old, but I sure don't know), how much wealth can be moved to the next generation without tax liability? If there is tax liability, at what interest rate and payment schedule can it be paid? Is an updated basis allowed at the time of death?

 

[norriscathy]

I apparently don't understand this very well and I am hoping that somebody will clear this up. How much tax was been paid on the appreciation of the assets (land and improvements) during the deceaseds life? Using current estate planning strategy (and I don't think the strategies are worthless at a week old, but I sure don't know), how much wealth can be moved to the next generation without tax liability? If there is tax liability, at what interest rate and payment schedule can it be paid? Is an updated basis allowed at the time of death?

It makes no difference how much tax the decedent paid during his life. The Estate tax is totally separate from income tax and is based on the Fair Market value of assets at date of death. The best Estate plan is to die before 2010 while the law is still in its "temporary repeal stage". If you think Congress will make the repeal permenant after 2010, then there is no tax to worry about!

Your question about "updated basis" is the most ignored and most beneficial point to consider when inheriting property. If you have 200 cows with a valve of $1,000 that you inherited from your uncle; your tax basis in those animals is $200,000. Yes; even though your uncle probably had already depreciated those cows down to "0" or raised them with no tax basis; you can start depreciating them all over again at the same FMV on date of death that they were included in his estate at. Doesn't matter if an Estate tax retun was filed or not; your tax cost in inherited property is FMV at date of death.