radicaldick[quote said:
Sorry to hear about your father and your situation....I wish you good luck down the road dealing with this.
thank you. I appreciate that.
And no I dont have any personal experience with the estate tax. But i have done research on it and there seems to be many opportunities to reduce the tax rate for those that this applies to.
i understand, but research, and actually dealing with it are two different things...as i have stated, i do not expect sympathy, since i am fortunate to be very well off myself and from a well off family, but as i was saying, there are real people behind this, and no matter how much estate planning you do, the government will still get you...you can do anything....defer income, put it in a spouse's name, put it in your kids' name...but eventually, they will get you.
I believe the average tax paid for taxable estates in 2005 for example was 20%. And the exemption is scheduled to increase to 3.5 million in 2009, 7 million for married couples.
indeed the exemption does increase, and significantly, and then for 1 year it is rescinded completely, but then it reverts back to its pre-2001 status, since it is still in limbo.
Either way, there are still many people who come out above this, inclduing farmers, small business owners, average folks who have saved and bought real estate which is increased significantly in value. etc.
I really hope you are getting good information and advice...
i appreciate that...don't worry we have a very brilliant estate tax attorney...but even he knows, you still have to pay the piper at some point
i dont think the intent of this tax is to penalize or destroy small businesses.
true...but i don't think a horse stampede is intended to run over prairie dogs and destroy their little burrows, but it does.
the vast majority of small business owners are these people who are wealthy and well off, but not "super rich". for example. a person who runs a small business that has sales of 5 million a year, who after everything makes a very nice salary of say 600,000 a year, pays his income taxes, saves and invests the remainder, pays his captial gains taxes on those investments etc...buys a house for say 500,000, that increases in value to say 5$ million...and whose personal investments may be worth 3 million in total, still will have big problems...
this is a person who is "worth" 8million dollars in investments and real estate...but what about his business? Its value, would be fairly calculated at about 1 year times sales value, or $5 million dollars...
so this person's "net worth" as a small business owner is $13 million. Indeed, this person is a fortunate and well of individual...while he is alive...but when he dies, his VALUE is destroyed...because suddenly, under the 2$ million exemption, his estate is still liable for nearly 50% (it will go to 55% federal and the exemption drops to 1 million in 2011)
so what must his dependents do? his estate has 11 million of taxable value that must be paid. a tax bill of 5.5 billion (roughly) (this does not count the capital gains taxes he must pay on the house and the business when they are sold.... if the home he bought for 500 k that is now worth 5 million is sold, that is 900k...
so in capital gains taxes alone, his estate owes 900k...which leaves his estate with roughly 4 million in cash from the sale of the home. 3 million in cash and investments, and a 5 million dollar business...with a 5.5 million dollar tax bill still to pay....how do you pay it?
You must choose...do you keep the business, which can earn you 600k a year in salary? (this assumes, that you want to be part of that business...you may be a stockbroker, while your father's company sold plumbing supplies) since you cannot run the business, and your father, who owned it and built it and understood the business, is dead, what can you do? If you want to keep the business, you will have to hire and promote someone to run it, and hope he or she does as good a job as your dad...he will need to be paid, so your earnings will be less that what your dad, made...you might probably get 300k a year out of it...
so here is the conundrum...you have a business...valued at $5 million, and you have no interest or experience in running it,... the company without its leader and founder, could earn you 300k a year if you hire or promote someone to run it....will it work? What if the guy is terrible and t he business goes under?
you have 7 million in cash...aside from the business...you owe 5.5 million in estate taxes...what do you do?
do you pay the estate taxes out of your liquid assets? that leaves you with 1.5 million in cash and investments, and a business valued at 5 million, that you can't or don't want to run, that earns you maybe 300-400k a year, IF it can survive with some new guy running it and without your dad, who built it from the ground up...
if the business fails within a year or two, you wind up with only 1.5 million in cash (split that if you have a sibling or two siblings) from a 13 million dollar estate.
so what is the smart thing to do to minimize your risk, and keep as much money as you can?
you sell the business to cover the estate taxes. so you have 7 million in cash, you sell the business for 5 million if you can get that price, without the man who built it still running it....you must pay the capital gains tax first (a total of about 20% fed and state in NY) so you have 11 million dollars, and a total tax bill of 5.5 million...you pay the taxes, you have 5.5 million left over...the house is gone and so is the business.
but you have 5.5 million in cash...very nice...but your dad was worth 13 million, had a home and a successfully running longtime small business, with who knows how many workers who depended on him for their lives as well (such as health care, a pension etc) who now must hope that the company who acquired your dad's company, will not lay anyone off, will not switch the company health plan to a lesser plan to save money, will manage the pension as effectively etc.
but it is not your concern anymore, because the government took everything, and you had to make the best choices for yourself.
is it a sob story like growing up penniless? absolutely not...but it affects many lives, not just the person's, and nothing is the same after it.
And as far as soaking the rich, the money it raises funds many essential programs, including health care and education.
Considering how wasteful the govenrment is most money gets lost in bureaucracy.
look how effective those government programs are.
that isn't an excuse for legalized theft...and the ironic thing, is in many cases, the money taken will go into the coffers to pay for the unemployment, health care assistance and public schooling, for the people and their kids who used to work for the now sold small business that they recently got laid off from...which is sadly ironic no?
education is not the job of the federal government, it is a state issue, so the federal estate tax is useless fro that. Universal health care is not provided with the money from the federal estate tax either, so where is it going?
with a little bit of intelligence, like a 10% tax on alcohol, and a 10% tax on legalized marijuana, you could actually eliminate the estate taxe by half, and still have tens of billions to try and craft a working universal health care system that actually works for the 30 million uninsured in this country (12 million of the uninsured are not american citizens, and as such, taking the estate taxes from US Citizens to give to non-us citizens, is absolutely criminal, and i have to believe unconstitutional in some way)
Unfortunately its going to be difficult to repeal as it would likely have a major negative impact on many less well off taxpayers. Again good luck.[/quote]
thank you. it is however repealed, but for one year only in 2010, after which it is reinstated in 2011 with an exemption of only 1 million and a maximum of 55%...which is simply criminal.