Federal Estate Tax - Rant

Jaybird180

Jaybird180

Final Approach
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Jaybird180
Although this is an angry rant, I hope this qualifies to stay outside of the Spin Zone.

I just found out that its possible that instead of my assets - specifically my life insurance - going to my family, the money grubbing tax man might try and come for his share.

I think there should be an automatic trigger for anyone buying life insurance over a certain amount, that this is included as an upfront disclosure of possible tax implication, maybe they can even offer you estate planning services at that time.

I'm just ticked off that I'm just now discovering that I've got this glaring opening in what I thought I was providing for my family if something unfortunate should happen to me. I was always told that Insurance payouts were exempt from taxes.
 
Welcome to progressive liberal nirvana, all I can say is thanks to GWB, it's better than it used to be.
 
The pay outs where exempt untill the affordable care act.
 
Yeah, there are ways around it. You'll need to talk with someone who knows a few things about estate planning.
 
The federal exclusion is the highest it's ever been. A married couple can pass almost 11 million dollars of assets and life insurance tax free. Is it really an issue for you?
 
FlyingTiger said:
The federal exclusion is the highest it's ever been. A married couple can pass almost 11 million dollars of assets and life insurance tax free. Is it really an issue for you?
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Yet measly disability insurance payments are taxed as income.
 
FlyingTiger said:
The federal exclusion is the highest it's ever been. A married couple can pass almost 11 million dollars of assets and life insurance tax free. Is it really an issue for you?
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if you're a farmer or small business owner you can get there pretty quickly
 
labbadabba said:
And the first reply:



Too late.....
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Yeah, politics has nothing to do with this issue.:rolleyes2: 2010 it was gone, 2011 it was back again and has been increasing ever since, it is a deadly tax for small closely held businesses and farms.
 
JHW said:
if you're a farmer or small business owner you can get there pretty quickly
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Seems a decent CPA/lawyer should be able to create an LLC with the beneficiaries listed as owners in the LLC. Dad dies, assets still remain within the LLC, kids do with it what they want.
 
Estate Tax is just another way for govt. to tax people twice. I think the estate currently has to be over $6 mil before it kicks in. Anyway, always new ways for Washington to dip into our pockets to cover their overspending.
 
SoonerAviator said:
Seems a decent CPA/lawyer should be able to create an LLC with the beneficiaries listed as owners in the LLC. Dad dies, assets still remain within the LLC, kids do with it what they want.
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Someone has to inherit dad's ownership interest in the LLC (think of it as a share of stock in a very small corporation); and that has to be valued to the satisfaction of the IRS.
 
Jaybird180 said:
Although this is an angry rant, I hope this qualifies to stay outside of the Spin Zone.

I just found out that its possible that instead of my assets - specifically my life insurance - going to my family, the money grubbing tax man might try and come for his share.

I think there should be an automatic trigger for anyone buying life insurance over a certain amount, that this is included as an upfront disclosure of possible tax implication, maybe they can even offer you estate planning services at that time.

I'm just ticked off that I'm just now discovering that I've got this glaring opening in what I thought I was providing for my family if something unfortunate should happen to me. I was always told that Insurance payouts were exempt from taxes.
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Thee are ways to avoid LI being subject to estate taxes, such as having the policy owned by an Irrevocable Life Insurance Trust. See an Attorney or CPA that specializes in estate planing for advice on ILITs.

Many life insurance policies are sold to pay the estate taxes so the estate can pass to the heirs without reduction for estate taxes.
 
FlyingTiger said:
The federal exclusion is the highest it's ever been. A married couple can pass almost 11 million dollars of assets and life insurance tax free. Is it really an issue for you?
Click to expand...


That's one successful democratic vote away from being knocked down to the "good old days."
 
bnt83 said:
Yet measly disability insurance payments are taxed as income.
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They are only taxable if you paid for the premiums with pre-tax money, or your employer paid for them. If you paid for it through a cafeteria plan with after-tax contributions, or simply bought hit own private policy, they should be tax exempt.
 
JHW said:
if you're a farmer or small business owner you can get there pretty quickly
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Absolutely, which is one reason why so many asset rich but cash poor family farms have been sold off. It is a hideous tax.
 
SoonerAviator said:
Seems a decent CPA/lawyer should be able to create an LLC with the beneficiaries listed as owners in the LLC. Dad dies, assets still remain within the LLC, kids do with it what they want.
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Did Dad contribute his assets to the LLC without owning the LLC? Lifetime gifts are added back to your estate when computing the estate tax.

The ways around it are quite sophisticated and complex.
 
People's excitement over the federal estate tax always cracks me up.

It effects very few people. Under current law, a couple can pass on almost $11,000,000 free from estate tax without any pre-death estate planning. For persons dying in 2012 less than 50,000 estate tax returns were filed and about 3,300 people actually paid estate tax.

You should be more concerned about state inheritance and estate taxes which impact many more people.
 
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Our lawyer works with a lot of farmers and other landowners in western KS. This is a very real problem for them.
 
TedR3 said:
People's excitement over the federal estate tax always cracks me up.

It effects very few people. Under current law, a couple can pass on almost $11,000,000 free from estate tax without any pre-death estate planning. For persons dying in 2012 less than 50,000 estate tax returns were filed and about 3,300 people actually paid estate tax.

You should be more concerned about state inheritance and estate taxes which impact many more people.
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Key words Ted, under current law, and you are absolutely correct about state estate laws, I live in Massachusetts which kicks in a $1,000,000.00
 
There is a lot to consider here, but depending on the total value of your estate, if the tax is being paid by the proceeds from life insurance, consider the fact that you provided for the tax liability at far less than 100 cents on the dollar.

Paying estate tax liability at "wholesale" prices (the life insurance premium) is a basic tenet of tax planning for high net worth individuals.
 
nddons said:
Did Dad contribute his assets to the LLC without owning the LLC? Lifetime gifts are added back to your estate when computing the estate tax.

The ways around it are quite sophisticated and complex.
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I agree, which is why I suggested that having a good CPA/lawyer well-versed in estate planning/taxes should be able to help navigate those waters. Obviously the earlier the LLC is created, the more assets should have been purchased under the entity. Using the life insurance payout to cover those estate taxes is another common hedge. As was mentioned, many a farm has had to liquidate assets like equipment and land, or sell out altogether in order to pay the taxes levied for dying.

The sooner we move to a Fair Tax, the better.
 
But the more money the government has, the more everyone will be taken care of! So why worry?
/sarcasm off
Jaybird180 said:
Although this is an angry rant, I hope this qualifies to stay outside of the Spin Zone.

I just found out that its possible that instead of my assets - specifically my life insurance - going to my family, the money grubbing tax man might try and come for his share.

I think there should be an automatic trigger for anyone buying life insurance over a certain amount, that this is included as an upfront disclosure of possible tax implication, maybe they can even offer you estate planning services at that time.

I'm just ticked off that I'm just now discovering that I've got this glaring opening in what I thought I was providing for my family if something unfortunate should happen to me. I was always told that Insurance payouts were exempt from taxes.
Click to expand...
 
TedR3 said:
People's excitement over the federal estate tax always cracks me up.

It effects very few people. Under current law, a couple can pass on almost $11,000,000 free from estate tax without any pre-death estate planning. For persons dying in 2012 less than 50,000 estate tax returns were filed and about 3,300 people actually paid estate tax.

You should be more concerned about state inheritance and estate taxes which impact many more people.
Click to expand...


It's actually ~$5,350,000/parent. If you title it right you can get that exemption limit for each parent.... but if one parent passes and they have it titled to pass to the surviving parent that doesn't work. It has to go into a trust for the kids not to be touched by the surviving spouse.

If you have an asset... like say farmland in the family that has skyrocketed in value in a short time, not so much cash, and one parent who passed away more than a decade ago this can be a headache beyond imagination. Tax rate beyond the exemption is 40%

I don't understand how anyone thinks these laws are fair and reasonable but that's probably spin zone territory so....
 
cowman said:
It's actually ~$5,350,000/parent. If you title it right you can get that exemption limit for each parent.... but if one parent passes and they have it titled to pass to the surviving parent that doesn't work. It has to go into a trust for the kids not to be touched by the surviving spouse.

If you have an asset... like say farmland in the family that has skyrocketed in value in a short time, not so much cash, and one parent who passed away more than a decade ago this can be a headache beyond imagination. Tax rate beyond the exemption is 40%

I don't understand how anyone thinks these laws are fair and reasonable but that's probably spin zone territory so....
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So if that one parent has ~$10million, and 5 kids, does each kid get up to ~$1M before the estate taxes kick in for them?
 
JOhnH said:
So if that one parent has ~$10million, and 5 kids, does each kid get up to ~$1M before the estate taxes kick in for them?
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The tax is on the estate, not the kids. So the one parents gets to give away the ~$5M in whatever ratio he wants to the kids, the IRS doesn't care who it goes to it's just how much is given total if that makes sense. Or another way to put it is the estate pays 40% tax on everything given in excess of the $5M

FYI, you can give away $14,000/year per person tax exempt. Beyond that you're supposed to file a gift tax return and that also counts against the estate exemption after death :rolleyes2:
 
Oh and that 40% of everything in excess of the exemption is due 9months after death, not when normal taxes are due. Nobody ever talks about that, it's a nice little gotcha for the IRS to stick your survivors with sickening penalties.
 
so you want to pay a small monthly fee so your family can make bank should you die and that income shouldn't be taxed? I'm not sure I follow the logic. I think probate is a crock but life insurance is a bigger crock.
 
cowman said:
The tax is on the estate, not the kids. So the one parents gets to give away the ~$5M in whatever ratio he wants to the kids, the IRS doesn't care who it goes to it's just how much is given total if that makes sense. Or another way to put it is the estate pays 40% tax on everything given in excess of the $5M

FYI, you can give away $14,000/year per person tax exempt. Beyond that you're supposed to file a gift tax return and that also counts against the estate exemption after death :rolleyes2:
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I'm an executor in a large estate similar to the "worst case" listed in this thread. My grandparents passed and left 110 acres in suburban Atlanta. A appraisal was taken and a value was established (as of the date of death) on the land for purposes of the tax filing with the IRS. Before any legitimate buyers appeared, the real estate market collapsed, leaving a tax obligation larger than the market value of the land. Meaning that it is entirely possible that NONE of my grandparent's wealth will pass to their heirs.

That's pretty firetrucked up.
 
Stewartb said:
so you want to pay a small monthly fee so your family can make bank should you die and that income shouldn't be taxed? I'm not sure I follow the logic. I think probate is a crock but life insurance is a bigger crock.
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Pretty sure that technically it isn't income, so no income tax. It counts towards your estate, just like your equity in your house, your car, your savings accounts, your airplane, ... It can put you over the death tax exemption limit quietly because so many people forget it adds up that way. And that exemption limit changes at the whim of Congress.
 
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