Death Tax issue coming up

[Buckskin gal]

, I have forgotten what the amount is where one would have to pay taxes on an inheritance...can you tell us? I have a very rich brother who is a farmer/rancher whose family would benefit trememdously if this tax law was again repealed. Believe me, I am all for lowering taxes but I know from conversations with my brother they get government benefits up the yahoo, can even not work the land they own and get paid for it! I know I am tired of subsidizing the farmer and then paying $10.00 a lb for a steak if I want one. And not saying every farmer or rancher may have it as good as my brother. I do know when my mother died there was no death tax to pay because she didn't die a real rich person, but had she been very rich and been in the ranks where a death tax wa to be paid, I sure would not have complained about it. I do believe that putting assets into trusts can be the best thing for those who are left an inheritance. Mary

There's just so much though that can be done if people take some action ahead of time.  People concerned about this, REGARDLESS of if it is repealed, need to speak to financial planners and attorneys who specialize in estate planning.  Setting up a by-pass trust is like Estate Planning 101 and can save the small side of large estates from all estate taxes.  Then for bigger estates, there are more things that can be done.  It is largly a voluntary tax and people can take action to protect their assets.  Plus, like I said, it has been repealed and then re-instated a number of times so regardless of what happens, it makes sense to put some things into place in the event it goes away and then comes back.  AS IT STANDS NOW, you could just plan to die in 2011, when it goes away, because it comes back in 2012 with the old exemption amounts if nothing is changed...
Also, it's worth mentioning here that people concerned about estate taxes tapping into the money and assets left to heirs should also consider protecting themselves against the number one thing that takes financially independent people into a welfare situation -- and that would be long term health care costs.  Another subject, but it really does tie in if you realize how overwhelming the cost for this type of care can be and the entire reason to buy long term care insurance is to protect your assets.

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[shminifancier]

Well you Get all the Monies back up to the Poverty level On Necessities,, Food and such..Every body does... You almost have to go to that web page to find out the Exciting things that happen if and when the Fair Tax system is in effect..

But, that would actually cost many (most?) people more money.  I happen to fall into the 28% marginal tax bracket after my deductions, but my EFFECTIVE tax is just over 16%...  Which is not unusual.  Remember, the tax brackets work so that your marginal tax bracket is the rate at which your last dollar of income is taxed, but for a married couple, on the first $14,000 of income, you pay 10%, then on from $14,001 - 56,800, you pay 15% ... maybe see below it makes more sense. 
Joint return figures: 

$0–$14,000 = 10.0%

14,000–56,800 = 15.0%

56,800–114,650 = 25.0%

114,650 –174,700 = 28.0%

174,700–311,950 = 33.0%

311,950 and up = 35.0%

So, see, looking at this, a 28% sales tax might actually cost the average person more assuming it's added to everything you purchase, including groceries, utilities...  As much as I am in favor of saving and investing the ONLY thing money is actually good for is spending.  It's no good to you until you turn it into something you need (or want).

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[Pepipony]

About taxes. Please remember people that Regan also lowered taxes and then ran up a huge deficit so when the first Bush came in under the slogan 'read my lips, no new taxes' and then had to raise them it was his undoing.

I hate taxes and would hate to have to pay more, BUT, how else do you pay down a deficit? Of course you can get rid of the hand outs ( that were supposed to be handUPS) but thats a whollllleeeeee nother story

( told you I do not follow party lines)

 

[Jill]

I'm not sure how thin a line it is for me to walk as far as giving actual advice because I know nothing of anyone's financial situations and I can only do business in my state, but I can tell you the exemption amounts. However, your brother NEEDS to get with an estate planning attorney. There is one I work with in my town frequently and he specializes. I would not want to send someone to the same attorney who did their real estate closing -- someone who specializes in estate planning is what you need. It may cost a couple thousand dollars, but will be so very much worth it.

This site has the tables and the exemption amounts:

http://www.cpadirectory.com/cpaclientcente...EstatePlan.html

and, if they are right (and they probably are), I mis-typed. It's 2010 you'd want to die in if you want to pay no estate taxes.

The way the system works, a person may leave any amount free of estate taxes to a surviving spouse. It is at the second death where the taxes are due.

So a by-pass trust is the first step. What this does is it leaves all but the individual exemptable amount (in 2005, that amount is $1.5M) into the surviving spouse with the exemptable amount going to the trust. The exemptable amount is the amount that can be left to someone other than a surviving spouse w/o taxation. The spouse may still tap into the trust in certain situations. Each person has a trust in which to leave their exemptable amount because you don't know who will die first. A trust doesn't die, doesn't pay estate taxes. It can be for the benefit of anyone or anything.

When this is done, and all the other more advanced things that can and should be done in big estates, it's important that the assets are equalized. You can spend all the time and money coming up with the legal documents that say this and that goes to the trust but most people own their house jointly w/ right of survivorship, one spouse is the other's IRA / 401k beneficiary, life insurance beneficiary, etc. It can happen that the legal documents are in place but the titling of the asset, and the beneficiary designations dictate. It could be that by the time the assets transfer according to how they are owned or beneficiaries named, there is not enough money in the decedents name to fund the trust. It's important to work with a knowledgable attorney and financial planner.

 

[OhHorsePee]

Jill, I really don't want to die in 2010 if that is ok with you. LOL

The problem is people don't like to believe they will die in their prime and, unfortunately, they do all too often. I prefer TOD's but a lot of people are not aware of them.

I truely believe that one day the only farmers will be Amish. And guess what? They do not have to pay taxes. Maybe I should just become Amish!!??!! They do still go to Wally World so it wouldn't be all too bad.

Fran

 

[Jill]

TOD and POD accounts are good because they avoid the probate process, as does any investment or account with a beneficiary designation, and it also receives the full stepped up basis. It's a MUCH better alternative to adding someone else to a title or an account because that opens that asset up to that persons' creditors (suppose they divorce and the unrelated spouse sues, or they are in at fault in an automobile accident...) and also then there's only 1/2 of the stepped up basis. HOWEVER, TOD does NOT avoid the estate tax if the estate is large enough to have one. It just avoids the probate process but is counted in the assets of the estate.

PS I don't wanna die in 2010 either, even if it costs more to do it later

 

[OhHorsePee]

Wow! You know, that was never explained to me (re:not avoiding the tax). Thank you so much for the info! Will have to make some adjustments now.

Thanks again

Fran

 

[Buckskin gal]

Jill, Would you explain what TOD and POD accounts are? Our assets are a little below a million so our survivors should not have to pay a death tax but we want to avoid them paying large lawyer costs so we have a beneficiary on each of our accounts. I have wondered and need to find out on our home and acreage if we can name a beneficiary. Mary

TOD and POD accounts are good because they avoid the probate process, as does any investment or account with a beneficiary designation, and it also receives the full stepped up basis.  It's a MUCH better alternative to adding someone else to a title or an account because that opens that asset up to that persons' creditors (suppose they divorce and the unrelated spouse sues, or they are in at fault in an automobile accident...) and also then there's only 1/2 of the stepped up basis.  HOWEVER, TOD does NOT avoid the estate tax if the estate is large enough to have one.  It just avoids the probate process but is counted in the assets of the estate.
PS  I don't wanna die in 2010 either, even if it costs more to do it later

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[justaboutgeese]

Actually a sales tax is the fairest form of taxation for all. A wealthy person buys a new _______ auto for $140,000 and pays the sales tax on it. Another individual buys a used Chevy pickup for $10,000 and pays his tax. Fair because there are fewer loopholes. You are taxed on what you spend not what you save or earn. One more point about the "death tax" it requires planning as it always has. When JFk died in 1963 he had 26 million dollars worth of life insurance. The insurance was to pay the taxes on his estate so that his assets were distributed according to his wishes rather than liquidated to pay the taxes.

 

[Jill]

Insurance is a great way to pay estate taxes. The best way for many people is a second to die life insurance policy, which pays off on the second spouse's death which is when the estate taxes are due. If it is set up right, and in an irrevokable life insurance trust, the death benefit is estate tax free. Life insurance benefits are always income tax free, and if structured correctly may also be estate tax free.

TOD and POD accounts are ones where you name a beneficiary so that if you die, the asset becomes theirs and does not need to go through the probate process like assets w/o named beneficiaries. Part of probate is to see who is entitled to what. With a TOD, POD or beneficiary account, that has already been taken care of and is not up for debate. Those things go according to account title EVEN IF the will says otherwise.

I do not believe that you can title Real Estate as TOD, but that's not my area and I could be wrong. Keep in mind, when determining if your estate qualifies for taxation, every thing owned is added up, including life insurance benefits (unless that was set up to pay to a trust -- you'd know if it was...). All your retirement money, any investment accounts, real estate, vehicles, personal property WHATEVER you own is part of your estate.

 

[OhHorsePee]

I just hope when I die that no one pays attention to things in my drawers. Items could be so misleading. LOL

Fran