inheritance tax should be 100%.

[AverageGuy]

Heck, isn't that less than the average cost of raising a child?

I got the figure from doing a websearch on the average cost of raising a child up to 18. The result I looked at actually came out under 170k, so I figured I gave some leeway. However, if it's actually more -- and it may well be, it was a random webpage -- just increase the number. Special needs children might be a problem, but you could probably solve that with some sort of aid program; hey, the government suddenly has 100% of everybody's money to fund it. If the original argument's coming from a meritocracy perspective, nobody gets their college paid for. Colleges would probably take a hit, and private schools, including my own high school, would probably die out.

As I said earlier, I don't like the idea, but I think it's possible to come up with workarounds at least for gifts and childraising.

ETA: I guess you'd need to create some sort of laws to stop $1 house sales, too.

[Balefont]

ETA: Bale - I know it pulls the $$ out of the calculation of wealth for medicare benefits, but that's about it. It really pisses me off that we only spent two days on trusts in my Decedants Estates and Trusts course in law school. Bastards. I should take a CLE.

Okay, from what I understand, the terms of such a trust require that first) the principal of the trust may not be used for the benefit of the grantor (grandpa) or his spouse, if she is living, second) the income is payable to or for grandpa's benefit for his life (usually used for medical and nursing home expenses, third) the trust may specifically state who the remainderman are or grandpa can have a limited testamentary power of appointment (power to appoint the principal via his Will to anyone but himself, his estate, his spouse, his spouse's estate or the creditors of either estate). This type of trust will shelter the property for Medicaid eligibility purposes.

However, due to the retained life estate, the full value of the trust, as of date of death, would be includable in the decedent's gross estate under §2036. There would be current gift tax implications at the time of the funding with respect to the remainder interest in the trust. These gifts would be "backed out" of the estate tax return due to the trust's full includability on the estate tax return (so the trust isn't being "taxed twice" - once at the gift level and once on the estate level).

[Usotsuki]

Ser Scot, true enough, but I wasn't aware that it was necessary to address hypothetical frauds in the post, I stand corrected.

[Guest Raidne]

Strangely enough, your present attitude isn't going to help my tone at all- save the sanctimony for someone who values your opinion rather more than I do.

I'm sorry, I won't be responding to you anymore. Seems as though Scot has it under control anyway. Enjoy the internets.

Flip - truly, if you think about it long enough, everything taxed has already been taxed.

[Tormund Ukrainesbane]

This is one of the worst ideas that I have ever heard. The fact that it is getting serious discussion and support makes me ill (although that could be the pipe tobacco and port).

First there is the underlying assumption that the state owns everything and we merely lease it at the sufferance of our masters. This is a horrifying thought that really didn't bring anyone any happiness when it was tried in the 60's throughout Europe and Asia.

Second there is the reek of class envy. This idea that rich kids didn't do anything to earn it and I work harder than they do so waaaaaah! Life isn't fair. Well it's true, life isn't fair. But punishing the rich kid to enrich the state will not make your life better. Besides that what did you do to earn it? What did the government do? "Tormund, the government provided the market and regulatory structure to AHHHH WHY ARE YOU BEATING ME WITH A SHILLELAGH TORMUND? OWWW!!....Yes I know that the government imposed such a structure, but these rich estates paid for that at the time the wealth was earned. At a percentage FAR higher than anyone else paid. They were square with the house when they died. This is outright thievery based on some silly notion that the children of the rich are useless, or the state doesn't have enough money.

Third there is the assumption that people only mass wealth for their own comfort and luxury. This is clearly false. Take away the ability to leave a better life for your children and you take away a HUGE motivation to create wealth. Then of course, most huge estates that you all are looking to punish really aren't flush with cash. They are composed of stocks, properties, and ownership of companies. Do we really want the government suddenly having a controlling stake in Microsoft, Apple, Time-Warner, and News Corp when Bill Gates etc. dies?

[Guest Raidne]

Then of course, most huge estates that you all are looking to punish really aren't flush with cash. They are composed of stocks, properties, and ownership of companies. Do we really want the government suddenly having a controlling stake in Microsoft, Apple, Time-Warner, and News Corp when Bill Gates etc. dies?

Hmmm...true. Wouldn't they just immediately be sold at market value? Honestly, once we get rid of the entire estate, I'm also wondering who's going to do all of this stuff, because normally it's all dealt with by estate lawyers and the probate court, who wouldn't be involved in a 100% tax situation - probate would no longer be necessary, and lawyers are normally paid of the estate.

ETA: Bale - Thanks!

[S John]

:lol: Tormund, I saw you reading and was hoping you hadn't had an aneurysm or something. I completely agree with your post, btw.

[Stubby]

I haven't done tax law here yet but I don't think we have any form of estate tax down here.

In fact, wills and estate planning is sold here on the basis that if you die intestate the govt will get most of it unless dependants need it. If a law came in that suggested that an estate was to be heavily taxed, let alone at 100%, there would be a civil revolt.

In WA, when the State govt suggested a tax on the value of the "family home" (as opposed to investment properties) they were nearly lynched.

A question on the UK law: If Bob dies and leaves his estate to his wife Doris and she dies a few weeks later, leaving her estate to the kids, does the tax have to be paid twice in three weeks?

[Ser Scot A Ellison]

Hakujingomi,

Ser Scot, true enough, but I wasn't aware that it was necessary to address hypothetical frauds in the post, I stand corrected.

Believe it or not people can be pretty creative when attempting to avoid taxes. If loopholes are not addressed they will be taken advantage of. Bet on it.

[Lany Freelove Cassandra]

Strangely enough, your present attitude isn't going to help my tone at all- save the sanctimony for someone who values your opinion rather more than I do.

Then they have refused the income and the asset goes to the state for auction - the putative inheritor has neither liability nor gain.

I fail to see the problem here.

Which would be tax evasion and a criminal offence.

If the State sells it at auction, really, everyone loses, except the person buying the property. And to tell a person they have to pay $XX in taxes and then sell the property for lessthan that amount? How is that even slightly just?

How would the straw purchase be tax evasion? The State already claimed the property and anyone could buy it and then sell it for any amount.

[Tormund Ukrainesbane]

Hmmm...true. Wouldn't they just immediately be sold at market value? Honestly, once we get rid of the entire estate, I'm also wondering who's going to do all of this stuff, because normally it's all dealt with by estate lawyers and the probate court, who wouldn't be involved in a 100% tax situation - probate would no longer be necessary, and lawyers are normally paid of the estate.

So now 51% of microsoft/whoever stock goes on sale all at once. The stock price plummets and thousands are laid off. God help us if several rich people die in one year, it would probably trigger a recession when the markets are flooded with this stuff.

Also, wither this assumption that the rich kids are useless and did nothing to earn their wealth. Obviously we have a few well-known examples such as Paris Hilton, you really don't hear all that much about the scions of moderately wealthy people. I would imagine that many, likely most take their obligations to the family enterprise seriously, and wind up as competent managers and business persons.

[Jaak]

It seems that 100 % inheritance tax has not been tried widely. 100 % income tax... close to that.

In Soviet Union, investment was, generally, illegal. Living from "unearned income" was a criminal offence, as was private trade or "speculation".

People (outside prison camps) did get salaries, and salaries were not equal. They could spend this money - indeed, had to spend money on food, necessities, rent. Soviet Union had an income tax - symbolic in size (The state was the employer of everyone, so most taxes came before, not after the nominal salary figure).

Owning houses was generally permitted. With restrictions. It was illegal to be a landlord, and there was a cap on the size of house which people were allowed to build. (Exceptions could be applied for on the grounds of big families). Owning more than one house was also illegal. Summer cottages were allowed, with a cap on size and restrictions on heating and heat insulation (so they could not be used year round).

It was legal to save money. But with ban on private trade or owning means of production, the one legal investment income was the low interest on demand accounts in state bank or longer term state debt.

Selling and buying houses was allowed. People could choose to move from a private house to a rented state apartment or vice versa.

And in Soviet Union, inheritance was allowed. There was a small inheritance tax, escheat of private property without close heirs or will, and Soviet citizens were legally allowed to make wills.

The ban on owning more than one house meant that people who inherited more than one were allowed to sell all except one within a deadline (1 year or so) and pocket/save/spend the cash.

There was no paid education in Soviet Union - all education was free of charge, either people got in through exams and studied for free or they failed exams and did not get in for any money. However, it was possible to spend on education, since a large portion of better performing students got scholarships, but not all.

There were and are variations, of course. How were the policies in China? Does North Korea currently permit inheritance? Does Cuba?

But a ban on private investment and initiative generally makes the economy perform worse. 100 % estate tax/escheat would do likewise - people would hurry up to spend everything they have earned in their lifetime if they know they cannot spend it on their children.

No doubt some already do. It is perfectly legal for a millionaire to spend all his property in his lifetime and leave the rest to charity and NOT invest anything in the education of children. But very few do.

[Guest Raidne]

So now 51% of microsoft/whoever stock goes on sale all at once. The stock price plummets and thousands are laid off. God help us if several rich people die in one year, it would probably trigger a recession when the markets are flooded with this stuff.

Yeah, I hear you there - that occurred to me. I would say that those effects would probably be accounted for, and that the shares could always be non-voting until liquidated and purchased by non-government entities, but I have no idea who will actually be doing all this holding and liquidating.

Also, wither this assumption that the rich kids are useless and did nothing to earn their wealth. Obviously we have a few well-known examples such as Paris Hilton, you really don't hear all that much about the scions of moderately wealthy people. I would imagine that many, likely most take their obligations to the family enterprise seriously, and wind up as competent managers and business persons.

Isn't Lila one? Where's she at? I'd like to hear her opinion on this.

[Hereward]

A question on the UK law: If Bob dies and leaves his estate to his wife Doris and she dies a few weeks later, leaving her estate to the kids, does the tax have to be paid twice in three weeks?

No tax is paid the first time. Spouses are exempt. The tax would be paid by the children if the value of the estate exceeded a certain figure, which I can't remember (Edit: Google tells me it's £325,000).

Edit: I think you'll find Lila was an alt, and a rather obvious one, now banned.

[Balefont]

Ugh. This is the kind of tone that I am so sick of lately.

No, I'm not missing the point. The issue is that when you take property, it comes with a value, generally some sort of adjusted basis. That is what you would be taxed on. So, you find yourself, as the inheritor, unable to pay, say, a 22% tax on property with a $500,000 adjusted basis. Let's say it's on a condo in Florida. Now the property can't even be sold for $100,000. Nobody who going to come out even is going to bother - they are just going to disclaim the inheritance.

But the disclaimer has to be executed within nine months the interest in the property is created (typically 9 months after death) and there are no extensions for disclaimers. Property subject to US Estate tax is valued as of date of death and 6 months following date of death (called the alternate value) in order to capture any sudden drops in the market in which the property is trading. If the estate has an estate tax liability and said liability decreases by electing to use the alternate values, you can end up paying much, much less in estate taxes.

That said, real property and tangible personal property (TPP) values are ascertained through appraisals which, no matter how you slice it an dice it, are inheritantly subjective. If real property or TPP is sold within the nine months after death, we typically rely on the gross sales price as the ultmate determining factor of value. The only time we have stuck with the appraised values rather than the eventual sales price were times when the real estate market was declining at such a rapid pace and the IRS wouldn't allow for the sales price as the value because the decreased sales price was "a reflection of post-death market decline". Still, the alternate appraised values were low enough that if the estate was subject to tax, we used the lower value.

For property where the value declined and sold a year or two out from death, it's pretty much tough luck. It happens, but not often in my experience.

Of course, now you could just sell your property to another party for, say, $50,000, pay $10,000 in tax, and then buy it back from them.

I don't believe you can sell property and buy it back from the person you sold it to in an effect to minimize or avoid taxation within our current tax code.

[Usotsuki]

Hakujingomi,

Believe it or not people can be pretty creative when attempting to avoid taxes. If loopholes are not addressed they will be taken advantage of. Bet on it.

I'm already convinced of it Ser Scot.

If the State sells it at auction, really, everyone loses, except the person buying the property. And to tell a person they have to pay $XX in taxes and then sell the property for less than that amount? How is that even slightly just?

I haven't, or more accurately the hypothetical state hasn't, told anyone that they have to pay $XX in taxes and sell the property for less that that. There is an assessed value a percentage of which has to be paid as income tax - if the inheritor either cannot or chooses not to pay then the property will be sold and the price after tax will be remitted to the inheritor.

How would the straw purchase be tax evasion? The State already claimed the property and anyone could buy it and then sell it for any amount.

A public open sale would be a market transaction. A straw purchase would involve inheritor/s and an agent conducted in private designed simply to reduce the nominal value of the property. According to Ser Scot's rule of fraud identification straw purchases could be reduced by forcing asset sales to be advertised.

[Guest Raidne]

The only time we have stuck with the appraised values rather than the eventual sales price were times when the real estate market was declining at such a rapid pace and the IRS wouldn't allow for the sales price as the value because the decreased sales price was "a reflection of post-death market decline". Still, the alternate appraised values were low enough that if the estate was subject to tax, we used the lower value.

This would seem to be a problem now, I would think, except it does seem to be mitigated by the alternate appraised value, which I was not aware of.

Also, damn Bale, thanks for the detail. My brain is now thoroughly rendered into mush for the rest of today.

[Balefont]

Hakujingomi,

Believe it or not people can be pretty creative when attempting to avoid taxes. If loopholes are not addressed they will be taken advantage of. Bet on it.

Which is another reason why the tax law is so "complicated". :P

[Altherion]

ETA: I guess you'd need to create some sort of laws to stop $1 house sales, too.

You'd need to come up with a lot more laws than that. The problem is that there are just so many ways to give away money and the government would really struggle to choke them off. For example, who are you to say that the personal secretary of a high ranking executive of a major corporation (who, completely accidentally, also happens to be the son or daughter of the latter) should not be paid a very high salary?

And even if you manage to stomp that out too, there's always genuine nepotism. Take a look at various communist countries where it was generally not quite practical to own massive amounts of property and bequeathing it to your heirs would be even more problematic. What do you think happened to the children of Politburo members or high ranking military officers? Realistically, the only people you really could take everything away from with such laws are the lower middle class (there's a lot less wiggle room if your only assets are illiquid, like some jewelry and a house).

Of course, this is all hypothetical -- you'll never get anywhere close to it. Bluntly, people love their children too much for this idea to go any further than a tax on very large inheritances and even then with caveats (i.e. no taking the family farm/store/whatever). Some aspects of a meritocracy sound nice, but you'll never get people to vote for it (especially not when trying to implement it via the government).

[Balefont]

This would seem to be a problem now, I would think, except it does seem to be mitigated by the alternate appraised value, which I was not aware of.

Also, damn Bale, thanks for the detail. My brain is now thoroughly rendered into mush for the rest of today.

Anytime. I love this shit. ;)

I'm getting all primed for Heckerling in a week.