Overaccumulation risk?

[Larry Ragman]

I’m the poster child for what NOT to do if your goal is to avoid taxation beyond the estate tax limit. I just revised my estate documents this month, and to quote my attorney “ You have not engaged us to assist you with estate tax planning strategies beyond the use of your marital deduction in your revocable trust , although I have advised you to do so. “ My Schwab rep at Private Client seconds this, and thinks I’m nuts not to cement the current limits with irrevocable trusts.
id rather keep it simple, everyone will inherit more than they need. The Wild Animal Refuge gets the biggest chunk after first -to-die.

Fair enough. Having made an error primarily based on experiences below the limit, I am interested in additional insights from those who have thought this through from the perspective of larger amounts.

[Bellescamp]

The Wild Animal Refuge gets the biggest chunk after first -to-die.

deleted

[FIREshrink]

Fair enough. Having made an error primarily based on experiences below the limit, I am interested in additional insights from those who have thought this through from the perspective of larger amounts.

I don't know, my plan is the tax man will get his and my kids will have to suffer with the dregs.

[MPMD]

No, not really. In the first place not many are going to exceed the current estate tax limits. But even if they did, what is the real problem, your heirs will get taxed on the overage of $22M.

i recognize there is an error in the post that has been corrected.

but for this part, it's remarkable to me how many people talk about the estate tax as if it is 100%. last time i looked it had a top marginal rate of 40%.

not trying to get into a debate on the merits of estate taxation, but i definitely know people who talk about the estate tax as if it will be the end of them and their heirs.

[Auric goldfinger]

Fair enough. Having made an error primarily based on experiences below the limit, I am interested in additional insights from those who have thought this through from the perspective of larger amounts.

You are a good moderator- agree with most of your recs. No criticism meant. ( I’m still suffering ptsd from LadyGeek slapping me down on G….heads)

[Auric goldfinger]

deleted

I read it before deleted. Heh, i have a house in Boulder county too. I buy land in Keenesburg, Colorado for the Wild Animal Sanctuary that doesn’t allow human visitors. It’s all for rescued big cats, wolves, bears. Not a tourist site. 6 hour drive from Boulder with dedicated 4wd. For survivors of Tiger King and his ilk. I’m more interested in dedicated animal rescue and human exclusion for this charity and Nature Conservancy. Plenty of other land to hike, bike, and ski for people.
There is no right or wrong charity, as long as Steve Bannon doesn’t run it.

[afan]

Right now, for those who will face estate taxes and the exclusion amount is high, attorneys recommend funding irrevocable trusts in behalf your individual heirs. You can remove those amounts from your taxable estate, even if they subsequently lower the exclusion. There was anticipation that Congress was going to reduce the limit in 2021, but that did not happen.

If you can afford it, this is still the best way to reduce eventual estate tax on up to $23M. If you cannot give away the full amount, then you can retain some access to the funds if you do SLATs.

Since amounts given to charities ard not subject to estate taxes, figure that in when calculating how much to give.

If you live in a state with estate or inheritance taxes, then it gets more complicated since the best move for federal purposes may raise the state tax. A good estates and trusts lawyer will know exactly what to do.

[FIREshrink]

i recognize there is an error in the post that has been corrected.

but for this part, it's remarkable to me how many people talk about the estate tax as if it is 100%. last time i looked it had a top marginal rate of 40%.

not trying to get into a debate on the merits of estate taxation, but i definitely know people who talk about the estate tax as if it will be the end of them and their heirs.

In 2026 we will be paying marginal estate taxes of 55-60% state plus federal. That does not feel just and is worth some energy to avoid.

[Tangler]

In 2026 we will be paying estate taxes of 55-60% state plus federal. That does not feel just and is worth some energy to avoid.

Agree.

Some forum members (MPMD et al.) have never met a tax they didn’t like.

They think the government needs more of your money and is justified in taking it.

I guess they think the government spends it efficiently and wisely?

I have never understood this.

”“Since this is an era when many people are concerned about 'fairness' and 'social justice,' what is your 'fair share' of what someone else has worked for?”
Thomas Sowell

[Larry Ragman]

In 2026 we will be paying estate taxes of 55-60% state plus federal. That does not feel just and is worth some energy to avoid.

Well, yes, if the estate rates sunset in 2025 as the law is currently written. That seems likely if a Democrat is elected (or re-elected) in 2024. Perhaps a Republican sweep in 2022/2024 would preserve current rates, perhaps not. But if not, many of us will have to start looking at avoidance strategies (gifting, irrevocable life insurance trusts, getting appreciating assets out of the estate, etc) or, as you say, accept that our estates will have to pay these taxes.

[Larry Ragman]

Agree.

Some forum members (MPMD et al.) have never met a tax they didn’t like.

They think the government needs more of your money and is justified in taking it.

I guess they think the government spends it efficiently and wisely?

I have never understood this.

”“Since this is an era when many people are concerned about 'fairness' and 'social justice,' what is your 'fair share' of what someone else has worked for?”
Thomas Sowell

The intersection of estate taxes and income taxes on inherited assets is an interesting policy quagmire. Personally, I don’t think the estate tax is fair because it a double taxation on generated wealth, some of which is simply due to inflation of asset valuations. On the other hand, I don’t really see a lot of justification for the policy of stepped up basis. Don’t get me wrong, I am happy to accept it and avoid the taxes on inherited property. But if I were designing the system I’d eliminate both.

[Larry Ragman]

Right now, for those who will face estate taxes and the exclusion amount is high, attorneys recommend funding irrevocable trusts in behalf your individual heirs. You can remove those amounts from your taxable estate, even if they subsequently lower the exclusion. There was anticipation that Congress was going to reduce the limit in 2021, but that did not happen.

If you can afford it, this is still the best way to reduce eventual estate tax on up to $23M. If you cannot give away the full amount, then you can retain some access to the funds if you do SLATs.

Since amounts given to charities ard not subject to estate taxes, figure that in when calculating how much to give.

If you live in a state with estate or inheritance taxes, then it gets more complicated since the best move for federal purposes may raise the state tax. A good estates and trusts lawyer will know exactly what to do.

Question for you, doesn’t the transfer of funds into the irrevocable trusts generate a gift tax against your estate tax exemption limit? Of course, that might make sense right now to lock in the advantage of the $12M/$24M estate tax limits on the assumption they will fall in 2026. But otherwise understood that was why people put life insurance into irrevocable trusts and funded it at amounts under the annual gifting limit of $16k.

[Tangler]

The intersection of estate taxes and income taxes on inherited assets is an interesting policy quagmire. Personally, I don’t think the estate tax is fair because it a double taxation on generated wealth, some of which is simply due to inflation of asset valuations. On the other hand, I don’t really see a lot of justification for the policy of stepped up basis. Don’t get me wrong, I am happy to accept it and avoid the taxes on inherited property. But if I were designing the system I’d eliminate both.

Agree. I will not inherit any $. Nothing. So the discussion for me is only involving my $ that i earned and i feel like i should be able to give away.
However, the step up in basis does seem a little silly.
Too much complexity.
Simplify it.
Tax code, simplify, reduce, increase efficiency.
Take the whole federal gov, simplify it, reduce it, increase efficiency.
Never happen
Both sides suck.

[Larry Ragman]

In 2026 we will be paying estate taxes of 55-60% state plus federal. That does not feel just and is worth some energy to avoid.

On your point about the effort to avoid, I don’t think it is all that much effort. I concede this is a personal decision and you may be happy for your estate to be taxed at that rate above the limits. But if you are a charitable person all you have to do is give it away. If you have heirs you have a lawyer set up a trust and put a life insurance policy in it. Couple of hours effort to save potentially a few million for my kids seems worth it to me. (OK to be clear, I mean under the 2026 limits, not the 2022 limits )

[MPMD]

In 2026 we will be paying estate taxes of 55-60% state plus federal. That does not feel just and is worth some energy to avoid.

i basically agree

fwiw i don't think any dollar should ever be taxed over about 40% and i would support a constitutional amendment on that.

i think this issue gets quite a bit more complex when you are talking about billionaire generation wealth combined w/ unfettered access to power for those people, but that doesn't mean it has an easy or fair solution.

if i were in a position to do so from a policy standpoint i would continue to explore my essential belief -- which is that the wealth and estates of wage earners should be generally viewed and treated differently than the wealth and estates of people who's primary job is to watch their own investments grow and who's wealth (and power!) increases even in the face of their laziness or crazy spending.

i think a hardworking neurosurgeon who works until she is 72 and accumulates a NW of $20M should be treated very differently by the IRS than a Walton grandchild who is worth $750M the moment they take a breath.