Warren Buffett on the Estate Tax

[iheartskins]

Ah, Larry, we discussed this already in the thread.

Something I probably should have included in my post is that there are a lot of tax-free transfers under the Code. I was making specific reference to that, and probably assumed that my audience would know what I was talking about.

Your point really goes to: at what point is one taxable transaction over, and when does the next one begin.

I think I was getting to the fact that when the money is being transferred pursuant to a will or other testator device, such a transfer should not be considered to be, in light of the analogy above, the beginning of another taxable transaction.

[Larry]

My response to Warren Buffett.

My family has had a farm in Ranson West Virginia since the early 1800s. I had family on both sides of the Civil War (that part was VA at the time) and there were small battles on the land. When my great grandfather died, he left the farm to his 7 children in equal parts. 6 of them did not want to farm, so they sold their shares back to my great Uncle Ray and payed taxes on the profit. My Uncle Ray ran the farm (about 200 acres) until his death last year at 95 years old. While the rest of Jefferson County boomed to become a suburb of NOVA and DC, the farm remained a working small farm.

When he died, he left the farm to his suriving two sisters (my two great aunts, neither of whom have ever married). They live on their Govt pensions in a house that they bought and paid for half a century ago.

The Govt has now stepped in and said that the farm is worth 8 million dollars. Even at 3 million protected, they are faced with paying an estate tax on 5 million, which comes to a little more than 2 million. Of course they dont have that kind of money, and there is nobody standing by to buy the farm if they put it up for sale.

So in the end, my families farm will be taken by the govt in lieu of taxes.

Or BEST CASE SCENARIO, my two aunts somehow come up with the money (sell the house etc) and pay the taxes. In which case, each would own 1/2. And when they pass away (1 is 97, the other 92), what then happens? You guessed it, Uncle Greedy comes back and gets to tax it all over again.

Either way, in the end, a farm that has been in my family for 6 generations will be lost. Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.

I have better idea. How about dreamers like Buffett and Gates donate their money to the Govt rather than charity. They obviously think Govt is qualified to collect and disperse it. So I think it's time that he shuts his piehole and lets his actions speak for him.

1) Of course, they do have that kind of money. They own 8 million dollars worth of Real Estate. (Which, I'm willing to bet, is listed on the county property tax rolls as being worth about 1/8th of that value. But that's another matter.)

2) Gee, that's a tragedy. Your Aunts being asked to pay taxes on the $8M unearned income they just received. The very idea that they'll only receive $6M.

3) Your Aunts won't lose the family home "Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.".

They'll lose it "because your Aunts decided that they'd rather have $6M cash than pay their taxes and keep their $8M home." Your Aunts are choosing to let the home be sold.

[Brad_Edwards_Fan]

1) Of course, they do have that kind of money. They own 8 million dollars worth of Real Estate. (Which, I'm willing to bet, is listed on the county property tax rolls as being worth about 1/8th of that value. But that's another matter.)

2) Gee, that's a tragedy. Your Aunts being asked to pay taxes on the $8M unearned income they just received. The very idea that they'll only receive $6M.

3) Your Aunts won't lose the family home "Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.".

They'll lose it "because your Aunts decided that they'd rather have $6M cash than pay their taxes and keep their $8M home." Your Aunts are choosing to let the home be sold.

So Larry, where do you stand on the exemption...how much should be shielded from the tax?

What is "rich enough" to pay the tax that those that are not "rich enough" must pay?

[iheartskins]

Your Aunts are choosing to let the home be sold.

Larry, where's the choice in the matter, if they have no other capital?

Are you suggesting they should have taken out a mortgage on the property to pay the taxes? And that by electing not to do that, they have made a choice to have the $6 million in cash?

[Cdowwe]

Considering Buffett is the second richest man in the US, with very few even close, I dont believe he speaks for the avg family that gets taxed when someone dies.

[dwbiggs]

Wow...timely post...my Aunt just passed away today and my Father is inheriting a 500 acre farm on the Potomac in WV. Unfortunately my Aunt chose not to set it up in a trust so I guess my Dad will be hit with big taxes.

Any ideas on how to handle the sale of the land or any other ideas on what to do in this situation...or is he just screwed?

[iheartskins]

dwbiggs--call a Trusts & Estates lawyer pronto.

[Kilmer17]

1) Of course, they do have that kind of money. They own 8 million dollars worth of Real Estate. (Which, I'm willing to bet, is listed on the county property tax rolls as being worth about 1/8th of that value. But that's another matter.)

2) Gee, that's a tragedy. Your Aunts being asked to pay taxes on the $8M unearned income they just received. The very idea that they'll only receive $6M.

3) Your Aunts won't lose the family home "Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.".

They'll lose it "because your Aunts decided that they'd rather have $6M cash than pay their taxes and keep their $8M home." Your Aunts are choosing to let the home be sold.

Larry, you're either being purposefully dishonest, or your comprehension skills are off today.

1- The land wouldnt sell for 2 million right now. Or do you really think that the Govt will give them the 8 mill they say it is worth?

2- They paid taxes on this property when they sold it to my uncle years ago. And they should (and would) pay taxes on it again if they sell it again. So why do you think they should have to pay it a THIRD TIME, simply because my uncle died?

Im seriously hoping that you simply misread what I wrote the first time.

[Kilmer17]

Wow...timely post...my Aunt just passed away today and my Father is inheriting a 500 acre farm on the Potomac in WV. Unfortunately my Aunt chose not to set it up in a trust so I guess my Dad will be hit with big taxes.

Any ideas on how to handle the sale of the land or any other ideas on what to do in this situation...or is he just screwed?

Sad to tell you this, but it's too late.

Your aunt would have needed to utilize the loopholes before she passed.

Your dad now gets taxed for your aunts death.

Aint America great!?!?!?!

[dwbiggs]

dwbiggs--call a Trusts & Estates lawyer pronto.

Thanks, is that what they are called specifically? They would have to contact a WV lawyer correct (we live in VA). They've looked into land trusts as well. The land sits under an historic overlook so we are kinda fearing what might happen if the state wants to preserve that overlook.

[DeanCollins]

Wow...timely post...my Aunt just passed away today and my Father is inheriting a 500 acre farm on the Potomac in WV. Unfortunately my Aunt chose not to set it up in a trust so I guess my Dad will be hit with big taxes.

Any ideas on how to handle the sale of the land or any other ideas on what to do in this situation...or is he just screwed?

if feasable, he should consider a partnership with a devoloper. River front property would seem a no brainer

[DjTj]

Wow...timely post...my Aunt just passed away today and my Father is inheriting a 500 acre farm on the Potomac in WV. Unfortunately my Aunt chose not to set it up in a trust so I guess my Dad will be hit with big taxes.

Any ideas on how to handle the sale of the land or any other ideas on what to do in this situation...or is he just screwed?

We don't offer practical advice here, we can only tell you that your dad is screwed, or in my case, I will tell you that your dad is getting exactly what he deserves.

P.S. Hire a lawyer.

When wealth becomes concentrated in too few people, it creates major societal problems particularly if economic mobility is impossible or nearly impossible.

On that point, I agree.

Whether the best means of ensuring that wealth (and ergo power, in your eyes), is the use of estate taxes, well, I'm just not convinced. I know that you didn't argue that the use of estate taxes is the optimal means.

So no, I wouldn't link the Estate Tax to being the idea that prevents the creation of oligarchies.

I think I've argued close to that, but I honestly don't really know. I do believe it pushes in the right direction, although PeterMP seems to believe it pushes in the opposite direction. It seems that today's ultra-wealthy haven't quite created estates like the Vanderbilts or Rockefellers of the world, and in that respect maybe it's working? :whoknows:

Also, in reference to meritocracy, I think that is a good argument against excessively large progressive taxes, but for the estate tax, I think the correlation between merit and heredity is far more tenuous ... Our laws default to transferring wealth by heredity, but the estate tax actually brings more merit into the equation by allowing smarter planners to better transfer their money. It separates the smart rich from the dumb rich...

It's kind of interesting that I make the opposite arguments that Lew Rockwell makes. I actually agree with him that the estate tax forces people to do act in extraordinary ways to avoid paying money to the government, but I think it's a good thing.

First, it discourages savings and investment.

I actually think this the whole point of the estate tax ... we don't want people hoarding their money until their death; the estate tax encourages people to spend it and spread it around the economy.

Second, it undermines job creation and wage growth.

I'm not sure what this means exactly, but increased liquidity should increase job creation and wage growth.

Third, it stifles investment.

This ignores the stepped-up basis, which actually encourages investment. While the estate tax takes out a chunk, the benefit of stepped-up basis encourages people to hold investments at their death rather than cash.

Fourth, it contradicts a central premise of American life, namely, building wealth and “getting ahead.”

I never thought that "getting ahead" meant "getting your heirs ahead for all time." During a person's lifetime (and especially during the prime earning years), the estate tax really shouldn't affect most people's decision-making. Building wealth and getting ahead are always good things.

[Larry]

I'd like to propose a tax on charitable donations.

Every dollar over 100,000 dollars should be taxed 65 percent.

Just as logical as taxing someones death imo.

Your plan would discourage people from donating.

Whereas I'd bet that the estate tax has not caused a single person to not die, to avoid the tax.

[Predicto]

Larry, you're either being purposefully dishonest, or your comprehension skills are off today.

Your response is at least as dishonest or confused.

1- The land wouldnt sell for 2 million right now. Or do you really think that the Govt will give them the 8 mill they say it is worth?

If this is true, then this is an assessment problem, not an estate tax problem. Bad assessments can be challenged. I sincerely doubt the government is asserting that the property is worth four times its actual value anyway, but if it is, then challenge it. If it is only wirht 2 million, there will be no estate tax on it at all.

2- They paid taxes on this property when they sold it to my uncle years ago. And they should (and would) pay taxes on it again if they sell it again. So why do you think they should have to pay it a THIRD TIME, simply because my uncle died?

As you are so fond of saying, you are mixing apples and porsches. When property is sold, you pay the capital gain on the increase in the value of the property. If you sell it again, you pay the capital gain again, but only on the new increase in value since the last time it was sold. Thus, your tax no. 1 and tax no. 2 in your example are not duplicative. Neither of them has anything to do with the Estate Tax. They are the basic tax on profits that everyone has to pay.

[dwbiggs]

We don't offer practical advice here, we can only tell you that your dad is screwed, or in my case, I will tell you that your dad is getting exactly what he deserves.

P.S. Hire a lawyer.

And he deserves this why?

[iheartskins]

We don't offer practical advice here, we can only tell you that your dad is screwed, or in my case, I will tell you that your dad is getting exactly what he deserves.

P.S. Hire a lawyer.

LOL! So true on the practical advice point. No sympathy from DjTj!

It separates the smart rich from the dumb rich...

That's an interesting point, and would prevent the Habsburg Dynasty, I think.

I actually think this the whole point of the estate tax ... we don't want people hoarding their money until their death; the estate tax encourages people to spend it and spread it around the economy.

That's a good point.

This ignores the stepped-up basis, which actually encourages investment. While the estate tax takes out a chunk, the benefit of stepped-up basis encourages people to hold investments at their death rather than cash.

True--though the stepped up basis is more of a means of addressing the capital gains tax than for estate taxes, don't you think? But I think I might be missing your point.

[DjTj]

And he deserves this why?

Well, I was being kind of tongue-in-cheek, but your Aunt wanted to give your dad a bunch of land, so clearly he deserves that.

The bottom line is that if your dad can partner with a developer or otherwise sell the land, he'll come away with a lot of cash (and the first $3 million will be tax-free).

[Kilmer17]

They've challenged the assesment twice. And lost both times. In fact, currently they Govt refuses to look at the property as farmland, instead they are classifying it as commercial because, this is a beauty, there is no farmer residing on the property. Nevermind that the farm is STILL being farmed through lease agreements.

Your second point is valid, but you're missing the broader point. Im not contending they have payed the SAME tax. Just that they will have paid 3 taxes. This current one will ultimately mean the loss of the farm.

[dwbiggs]

The bottom line is that if your dad can partner with a developer or otherwise sell the land, he'll come away with a lot of cash (and the first $3 million will be tax-free).

Just so I understand...there is an estate tax when he has inherited the land he owes immediately, then there is the tax when/if he sells the land?

What do you men by partner with a developer...I assume you don't mean selling all to developer up front? What kind of partnership? My Dad did get a suggestion that he should sell the land off in 30 acre lots...I guess to spread out the tax hit? :whoknows:

[Predicto]

They've challenged the assesment twice. And lost both times. In fact, currently they Govt refuses to look at the property as farmland, instead they are classifying it as commercial because, this is a beauty, there is no farmer residing on the property. Nevermind that the farm is STILL being farmed through lease agreements.

Again, this is not an estate tax problem. Presenting it as one skews the discussion.

Your second point is valid, but you're missing the broader point. Im not contending they have payed the SAME tax. Just that they will have paid 3 taxes. This current one will ultimately mean the loss of the farm.

Yes, but mixing up different taxes like this also skews the discussion. I bought a bagel this morning and I paid my auto registration bill and my property tax bill this afternoon. Each time I paid a tax. Would it be reasonable to say I was "tripletaxed aaarg" in the context of this discussion?

You were making a point about the evils of the Estate Tax, but your points are about other things. I am sorry about the plight of your family here, but you have not demonstrated the inequities of the Estate Tax, in general.

[Destino]

I'm not an idealist so I'm free to look at issues without absolutes. There is a difference between an estate of 100,000 and 100,000,000. I don't shed a tear for the sons and daughter of billionares getting less money they never worked a day in their lives to earn. The end result is that they are still rich purely because they won the universal lottery and were born to wealthy parents. That alone is more then most will every get and is enough to fight off any misplaced guilt at supportting taxation on this issue.

I don't care if I'm accused of class warfare or anything of the sort. I do not support laws that HELP the creation of aristocracy here in the US. I have no doubt that there will always be an undeserving wealthy elite class of people - but that doesn't mean I need to help them keep it that way.

[Kilmer17]

Again, this is not an estate tax problem. Presenting it as one skews the discussion.

Yes, but mixing up different taxes like this also skews the discussion. I bought a bagel this morning and I paid my auto registration bill and my property tax bill this afternoon. Each time I paid a tax. Would it be reasonable to say I was "tripletaxed aaarg" in the context of this discussion?

You were making a point about the evils of the Estate Tax, but your points are about other things. I am sorry about the plight of your family here, but you have not demonstrated the inequities of the Estate Tax, in general.

Im not claiming it's inequitable. I think it's unfair to everyone equally.

If you bought a bagel and paid tax, then got charged another tax for eating it, then a third for end result, that would be a valid comparison.

Let's say my aunts pay the tax on 8 mill. Then sell it next year for 8 mill exactly. They will have to pay tax on it again.

Just because Warren Buffett and his family have billions of dollars so a few mill here and there means nothing, doesnt mean that everyone is in his same boat.

The left loves the current income tax system, why doesnt he propose a higher tax percentage for people leaving estates over certain benchmarks?

Say, the first 3 mill is free, then the next 10 mill is 10 percent taxed, then the next 100 mill is 50 percent taxed, then anything else, the Govt gets 95 percent.

Think he'd still go for it?

[DjTj]

The first 3 mill will be tax free? How is this? What do you men by partner with a developer...I assume you don't mean selling all to developer up front? What kind of partnership? My Dad did get a suggestion that he should sell the land off in 30 acre lots...I guess to spread out the tax hit? :whoknows:

Okay, now we're going to start offering you bad legal advice ... (Disclaimer: I am not a real estate lawyer, nor am I licensed in West Virginia, and the following should not be construed as legal advice)

Basically, $3 million of your aunt's estate should be tax-free. If the land is the only thing in her estate, that all goes to your dad, but if there's a bunch of other stuff in the estate, your dad will only get a pro-rated portion of the $3 million exemption.

Partnering with a developer would be pretty complicated, and that would probably only happen if some developer approached your dad about the land.

Selling it off in 30-acre lots would not change anything about the taxes, but it might help your dad make more money if he doesn't have a buyer for all of the land.

The bottom line is that your dad probably needs to hire a lawyer who actually does these things on a regular basis.

[iheartskins]

dwbiggs, I agree with DjTj's bad legal advice (and I'm not a real estate lawyer, nor am I licensed in WV, nor should this be construed as an endorsement of the dispensation of bad legal advice).

[dwbiggs]

Disclaimer noted...I'm just trying to get ahigh level understanding cause I know nothing of this subject as you can tell.

I'll suggest to them about the lawyer and the contractor partnership as a possible option.

Aught to be an interesting, if not painful, experience for my parents...don't envy them any. Just wish my Aunt could have had better foresight on setting up her estate.