Estate Tax Dormant, Billionaire’s Bequest Is Tax-Free - NYTimes.com y DAVID KOCIENIEWSKI
Published: June 8, 2010
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan?s riches ? Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world ? would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher ? 55 percent.
Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan?s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.
Replies
78
SoWal Insider
Interesting anecdote. A friend of mine in CA is direct heir to a mobile home park which is lucrative and cash flows nicely as there is no debt.
The heirs would love to do something else with the property, but won't be able to because of the capital gains tax. This property was purchased in 1927 and is worth eight figures today. They will be forced to sell to pay the capital gains. Yikes!
Real estate is particularly tough, unfortunately. My Daddy and his brothers were constantly selling their land to each other to help abate taxes, yet keep it in the family. Doing a title search on their tracts is mind-boggling. Not sure if you can do that today or not.
And, the IRS wants their money fast! Nine months to liquidate! Try that in this market.
The heirs would love to do something else with the property, but won't be able to because of the capital gains tax. This property was purchased in 1927 and is worth eight figures today. They will be forced to sell to pay the capital gains. Yikes!
Real estate is particularly tough, unfortunately. My Daddy and his brothers were constantly selling their land to each other to help abate taxes, yet keep it in the family. Doing a title search on their tracts is mind-boggling. Not sure if you can do that today or not.
And, the IRS wants their money fast! Nine months to liquidate! Try that in this market.
Edited
Beach Fanatic
Nope, wrong again.
Many types of assets have no taxes paid at all:
Again- last year a married couple could totally exclude up to 7M USD.
- Qualified retirement plans-exclusive of SS tax
- Annuities
- Cash value life insurance
- Unrealized capital gains
And again, under your scenario many heirs of mass affluent taxpayers who had no estate tax liabilty will face a capital gains liability.
This is keeping me from work. C-ya later
What about the store owner who worked, saved, built his business and now has a business worth say 10 million. Every dime of what is invested has already been taxed and now his heirs owe death tax on 3 million. Sucks to be them huh?
Beach Fanatic
What about the store owner who worked, saved, built his business and now has a business worth say 10 million. Every dime of what is invested has already been taxed and now his heirs owe death tax on 3 million. Sucks to be them huh?
Well it depends, under some scenarios they could come out worse with estate tax eliminated.
2009 Worst case scenario they pay 45% on 3M and net 8.65M.
2010 Worst case scenarion they pay 15% cap gains or 28% AMT.
It depends on how much basis old dad has in the property. If it is very low basis property and if the AMT bite is high the results could be similar
Large cap gains trigger AMT. If 7M cap gains triggers 20% blended cap gains/AMT they net 8.6M
I am not a CPA and the calculation is very detailed. My point is that there will be a tax liability will be under either scenario.
Turning off the estate tax does not eliminate all tax liability.
We will give you partial credit here. :clap:
Edited
SWGB
What about the store owner who worked, saved, built his business and now has a business worth say 10 million. Every dime of what is invested has already been taxed and now his heirs owe death tax on 3 million. Sucks to be them huh?
While I'm not against the Estate Tax (that's what it's actually called folks), I'd have to say that those heirs were really lucky the deceased could build such a business while being D-U-M-B.
I had a friend inherit his mothers estate and with the help of an accountant before she passed he payed no estate taxes. Needless to say I would venture the majority of people paying estate taxes are those that inherit when a relative passes unexpectedly, kind of like the lottery.
Beach Fanatic
Interesting anecdote. A friend of mine in CA is direct heir to a mobile home park which is lucrative and cash flows nicely as there is no debt.
The heirs would love to do something else with the property, but won't be able to because of the capital gains tax. This property was purchased in 1927 and is worth eight figures today. They will be forced to sell to pay the capital gains. Yikes!
Real estate is particularly tough, unfortunately. My Daddy and his brothers were constantly selling their land to each other to help abate taxes, yet keep it in the family. Doing a title search on their tracts is mind-boggling. Not sure if you can do that today or not.
And, the IRS wants their money fast! Nine months to liquidate! Try that in this market.
You must mean estate tax.
Your friend is likely overstating their case. Interesting and misleading.
The IRS does NOT require 9 mos to sell the property.
Without a Will, My Kids Will Lose the Family Farm (or Business)
?The family farm?or family business?that Mom and Dad hoped to hand down from generation to generation will need to be sold to pay the ?death tax.? ? Not true, for several reasons.
First, remember the first $2 million is tax free ($4 million with a family trust). That increases to $3,500,000 (and $7 million) in 2009. Some family businesses, or farms, may be worth more than that. Most aren?t. Therefore, no tax. The family will inherit the business tax free, and your children can continue to run the family business.
Second, even if you are fortunate enough to own a family business worth more than $7 million, the tax code actually has special provisions to protect your family business?and even more special provisions to save the family farm. If your estate is greater than $7 million and the family business accounts for more than 35 percent of the value, any taxes due on your estate can be the paid over 14 years.
If that isn?t help enough, your children can pay interest only for the first five years, at interest rates in the 1 percent or 2 percent range, and then pay off the balance over the next nine years at an interest rate of about 4 percent. Even when the Federal Reserve Discount rate was below 1 percent in the year 2004, you couldn?t get that low an interest rate on a first mortgage on your house!
The 7 Most Common Estate-Planning Myths - Entrepreneur.com
SoWal Insider
You must mean estate tax.
Your friend is likely overstating their case. Interesting and misleading.
The IRS does NOT require 9 mos to sell the property.
Without a Will, My Kids Will Lose the Family Farm (or Business)
“The family farm—or family business—that Mom and Dad hoped to hand down from generation to generation will need to be sold to pay the ‘death tax.’ ” Not true, for several reasons.
First, remember the first $2 million is tax free ($4 million with a family trust). That increases to $3,500,000 (and $7 million) in 2009. Some family businesses, or farms, may be worth more than that. Most aren’t. Therefore, no tax. The family will inherit the business tax free, and your children can continue to run the family business.
Second, even if you are fortunate enough to own a family business worth more than $7 million, the tax code actually has special provisions to protect your family business—and even more special provisions to save the family farm. If your estate is greater than $7 million and the family business accounts for more than 35 percent of the value, any taxes due on your estate can be the paid over 14 years.
If that isn’t help enough, your children can pay interest only for the first five years, at interest rates in the 1 percent or 2 percent range, and then pay off the balance over the next nine years at an interest rate of about 4 percent. Even when the Federal Reserve Discount rate was below 1 percent in the year 2004, you couldn’t get that low an interest rate on a first mortgage on your house!
The 7 Most Common Estate-Planning Myths - Entrepreneur.com
Not nine mos. to sell the property, although it's semantics because it's nine mos. for the tax due. In this case, it means sell the property because they don't have this kind of cash lying around to pay Uncle Sam in nine months. Property is in San Francisco - it's worth eight figures. And, today it's moot because it hasn't been passed on due to death. There was one death and it passed to spouse.
Another good article, BTW.
Edited
SoWal Insider
Most Americans would be paying more with a flat tax.
And, most if not ALL non-Americans, as well. It is estimated that converting our system to the fair tax would generate more than $7TR/year by capturing: those who cheat on their tax returns; and, illegal aliens alone.
I am officially for the Fair Tax. :clap:
Beach Fanatic
Steinbrenner will pay no Death Tax
George Steinbrenner, the billionaire Yankees owner, could end up owing no federal estate tax -- because there is no federal estate tax this year.
PostPartisan - George Steinbrenner and estate tax insanity
George Steinbrenner, the billionaire Yankees owner, could end up owing no federal estate tax -- because there is no federal estate tax this year.
PostPartisan - George Steinbrenner and estate tax insanity
SoWal Expert
So how much roughly will this dumbarse decision by Congress to let it lapse for a year cost us?
Beach Fanatic
Fair TAX (alleged)
That's only half the story.
If you think having a national sales tax is going to eliminate tax cheating then you are wrong.
Trust me, fudging sales taxes receipts is very common and undetectable.
The Fair Tax proponents are preying on the endemic ignorance of Americans.
To make up the shortfall the fair tax (alleged) would have to be higher than 30%.
So if cutting the till is tempting when the tax rate is 7%...gee wonder what it will be like when the sales tax is 37%?
A house that sells for 300K is going to cost the buyer almost $400K and the home mortgage interest deduction will go away.
:idontno:
I
And, most if not ALL non-Americans, as well. It is estimated that converting our system to the fair tax would generate more than $7TR/year by capturing: those who cheat on their tax returns; and, illegal aliens alone.
I am officially for the Fair Tax. :clap:
That's only half the story.
If you think having a national sales tax is going to eliminate tax cheating then you are wrong.
Trust me, fudging sales taxes receipts is very common and undetectable.
The Fair Tax proponents are preying on the endemic ignorance of Americans.
To make up the shortfall the fair tax (alleged) would have to be higher than 30%.
So if cutting the till is tempting when the tax rate is 7%...gee wonder what it will be like when the sales tax is 37%?
A house that sells for 300K is going to cost the buyer almost $400K and the home mortgage interest deduction will go away.
:idontno:
I
Beach Fanatic
George Steinbrenner, the billionaire Yankees owner, could end up owing no federal estate tax -- because there is no federal estate tax this year.
PostPartisan - George Steinbrenner and estate tax insanity
Well, not exactly.
He's dead.
Beach Fanatic
So how much roughly will this dumbarse decision by Congress to let it lapse for a year cost us?
NO NO NO NO NO
Don't blame Congress.
This was a gimmick that effectively disguised the cost of the 2001 & 2003 tax bills.
Yes, Congress passed it but with all due respect it was part of the agenda of that great American president George W Bush.
Congress's foolishness is not the NO estate tax this year but the 1M allowable exclusion amount or credit shelter limit that will come back next year.
Beach Fanatic
NO NO NO NO NO
Don't blame Congress.
This was a gimmick that effectively disguised the cost of the 2001 & 2003 tax bills.
Yes, Congress passed it but with all due respect it was part of the agenda of that great American president George W Bush.
Congress's foolishness is not the NO estate tax this year but the 1M allowable exclusion amount or credit shelter limit that will come back next year.
I wonder how many people are thinking of pulling their mortality events forward into the 2010 tax year now because of this?:shock:
SoWal Expert
I thought the article said the reason we have NO estate tax this year was that Congress couldn't agree on the rate - so last year it was the old rate and the new rate goes into effect next year. :idontno:
SoWal Insider
And, I thought there was discussion surrounding confusion over whether it would be 1MM or 3.5MM in 2011. Maybe it's been settled??
Banned
That's only half the story.
If you think having a national sales tax is going to eliminate tax cheating then you are wrong.
Trust me, fudging sales taxes receipts is very common and undetectable.
The Fair Tax proponents are preying on the endemic ignorance of Americans.
To make up the shortfall the fair tax (alleged) would have to be higher than 30%.
So if cutting the till is tempting when the tax rate is 7%...gee wonder what it will be like when the sales tax is 37%?
A house that sells for 300K is going to cost the buyer almost $400K and the home mortgage interest deduction will go away.
:idontno:
I
I can't think of anything that would discourage buying and hurt the economy more than a sales tax. Not only that, the tax could be avoided in many cases by buying online as it is now. The bigger issue, nobody has the wisdom to figure out just what effect such an abrupt change in the tax system is going to have. There are too many variables. It could be disastrous for both the economy and the generation of revenue. We simply have no past history to go on. I think any changes to our tax system should be more gradual.
Beach Fanatic
And, I thought there was discussion surrounding confusion over whether it would be 1MM or 3.5MM in 2011. Maybe it's been settled??
It has been settled.
The tax cuts sunset and the limit goes back to 1MM in 2011.
Beach Fanatic
I thought the article said the reason we have NO estate tax this year was that Congress couldn't agree on the rate - so last year it was the old rate and the new rate goes into effect next year. :idontno:
Didn't read the article.
The estate tax limit (allowable exclusion amount or whatever) increased incrementally from 2001 (675K) to 2009 (3.5MM). The estate tax vanishes this year but returns in 2011 with a allowable exclusion amount of 1MM.
This was enacted as what is popularly known as the Bush tax cuts.
The foolishness has many fathers. :lol:
SoWal Insider
I can't think of anything that would discourage buying and hurt the economy more than a sales tax. Not only that, the tax could be avoided in many cases by buying online as it is now. The bigger issue, nobody has the wisdom to figure out just what effect such an abrupt change in the tax system is going to have. There are too many variables. It could be disastrous for both the economy and the generation of revenue. We simply have no past history to go on. I think any changes to our tax system should be more gradual.
I used to think the same and we will probably have a lull for a couple of years regarding consumer spending. If you make $100,000, you take home approx $70K. With the sales tax, you take home $100K and pay a proposed 23% on everything you purchase. Do you spend $30K/year as a consumer? Capturing a tax on illegal aliens is very much a positive as well as securing a tax on those who are 'under the radar' and those who cheat on their returns. We do need a strong transition phase, however.
SoWal Insider
I think there is still some chatter that Congress will enact the $3.5MM.
Estate tax in limbo - Jun. 18, 2010
Who knows? My estate is no longer worth $3.5MM so I really don't have much to worry about. 😀
From the article:
Optimists still hold out hope Congress will offer clarity before 2011, but the smart money says it won't come before the mid-term elections in November.
Then again, who knows?
Lawmakers shocked the death rattle out of people by actually letting the estate tax lapse this year. Soon after, there was talk that they would reinstate the estate tax retroactively. Wrong again. Now halfway through the year, few expect that will happen.
Next expectation? Lawmakers absolutely, positively will come up with a more lenient version of the federal estate tax for 2011 than the one slated for currently.
Several key senators have been trying to cut a deal for months. Negotiations have stalled on more than one occasion.
"We're almost half a year away from a tax policy that a super majority of senators say they don't support. Yet, we're stuck," Sen. Charles Grassley, R-Iowa, said earlier this week. "This time-sensitive issue has taken a back seat to everything else."
Anne Mathias, director of research at Concept Capital's Washington Research Group, thinks it's a fair bet to assume the new exemption level will fall somewhere between $3.5 million to $5 million.
But she also said if Republicans sweep the mid-term elections, and win at least 60 seats in the Senate, they may push to extend the repeal of the tax.
When Hartnett was asked what he thinks will happen with the estate tax next year, he gave the only answer he and his colleagues can give for many estate tax questions these days: "I don't know."
Estate tax in limbo - Jun. 18, 2010
Who knows? My estate is no longer worth $3.5MM so I really don't have much to worry about. 😀
From the article:
Optimists still hold out hope Congress will offer clarity before 2011, but the smart money says it won't come before the mid-term elections in November.
Then again, who knows?
Lawmakers shocked the death rattle out of people by actually letting the estate tax lapse this year. Soon after, there was talk that they would reinstate the estate tax retroactively. Wrong again. Now halfway through the year, few expect that will happen.
Next expectation? Lawmakers absolutely, positively will come up with a more lenient version of the federal estate tax for 2011 than the one slated for currently.
Several key senators have been trying to cut a deal for months. Negotiations have stalled on more than one occasion.
"We're almost half a year away from a tax policy that a super majority of senators say they don't support. Yet, we're stuck," Sen. Charles Grassley, R-Iowa, said earlier this week. "This time-sensitive issue has taken a back seat to everything else."
Anne Mathias, director of research at Concept Capital's Washington Research Group, thinks it's a fair bet to assume the new exemption level will fall somewhere between $3.5 million to $5 million.
But she also said if Republicans sweep the mid-term elections, and win at least 60 seats in the Senate, they may push to extend the repeal of the tax.
When Hartnett was asked what he thinks will happen with the estate tax next year, he gave the only answer he and his colleagues can give for many estate tax questions these days: "I don't know."
Beach Fanatic
I used to think the same and we will probably have a lull for a couple of years regarding consumer spending. If you make $100,000, you take home approx $70K. With the sales tax, you take home $100K and pay a proposed 23% on everything you purchase. Do you spend $30K/year as a consumer? Capturing a tax on illegal aliens is very much a positive as well as securing a tax on those who are 'under the radar' and those who cheat on their returns. We do need a strong transition phase, however.
That's the catch.
23% is not high enough
To make up the difference the sales tax rate is over 30%.
Even a single person making 100K doesn't have 30% federal tax liability.
Beach Fanatic
]I think there is still some chatter that Congress will enact the $3.5MM.
I have heard the same talk but just as much to totally exempt estates also.
I don't know.
If they do, hopefully it will be linked to inflation.
I have heard the same talk but just as much to totally exempt estates also.
I don't know.
If they do, hopefully it will be linked to inflation.
SoWal Insider
That's the catch.
23% is not high enough
To make up the difference the sales tax rate is over 30%.
Even a single person making 100K doesn't have 30% federal tax liability.
You're right, the tax liability is based upon the AGI. I just used that for simplicity. But, if you make $100K and your AGI is $80K, your tax liability is still five figures making your marginal tax rate 25%. Most states have an income tax as well as a tax on just about everything else. My city/county sales tax is around 8% now, NYC is close to 13%. There is no rhyme or reason to the property tax rate I pay and it's expensive. NJ has a higher sales tax, but no tax on consumable items like food, clothes under a certain price point, etc. MT is the same - and they have no speed limit (just thought I toss that in because I like it).
I think it is proposed that 23% will capture approximately $7TR/yr. and I don't think this includes tourists. In some countries as a tourist, I pay their outrageous sales tax, VAT, etc. Gas in Germany is $15/gal. - most of which is a tax.
There are a lot of variables to make this change, but so far, I like what I am learning from the Libertarians regarding this. This is a good article on the subject. There is also a proposed flat 'progressive' tax, which would benefit those in the current lower tax brackets. We currently have a progressive income tax, which in theory penalizes you monetarily, the more money you earn......which could equate to the 'harder you work.'
The Flat Tax: Simplicity Desimplified | The Freeman | Ideas On Liberty
Beach Fanatic
That's the catch.
23% is not high enough
To make up the difference the sales tax rate is over 30%.
Even a single person making 100K doesn't have 30% federal tax liability.
I haven't studied the Fair Tax, but I understood that it included a monthly prebate to each family based on number of family members that was meant to offset the tax paid on essential services.
Beach Fanatic
You're right, the tax liability is based upon the AGI. I just used that for simplicity. But, if you make $100K and your AGI is $80K, your tax liability is still five figures making your marginal tax rate 25%
But not all your AGI is taxed at 25%.
Depending on filing status, exemptions and deductions you owe 10% on some, 15% on some and finally 25% hence 25% marginal tax rate.
There is a lot of data that suggests the 23% flat tax rate is much too low to replace revenue.
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