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Estate tax queston

R

rrlund

Well-known Member
Not that I've ever inherited anything or that I ever will,just curious.
Let's say that the first million of an estate is exempt and that the estate tax on anything over that is 50%. Now let's say somebody inherits a farm estate worth 2 million. Now let's say that the farmer who died had $500,000 in debt using various things in the estate for collateral.
Would the person who inherited the estate pay 50% on the entire second million in value or on half a million? The second million,minus the debt.
 
The net estate, assuming just your numbers, is 1.5 million dollars. With the first $1million exempt, the tax would be imposed on $500,000. h
However, that is the estate tax; some states still have an inheritance tax, imposed on the beneficiary receiving the property, in addition to the tax the estate paid. Check with a lawyer in the state where the person died.
 
The second million, minus the debt. Since I am a big one for insisting that people credential themselves before offering a lot of professional advice, I will tell you that attorneys seem to do most of the estate tax returns. I see very few in my practice...starving lawyers nick the work before the heirs even think of calling me. Amusing, because they are probably the least qualified to do them. Most of the ones I do see are people whose sole assets are a suburban house and a modest bank account...no tax there! I do, however, have a couple clients around who are extremely wealthy and prominent folk. I have done some interesting estate work over the years for them...mostly involving getting assets OUT of the estate before death in a manner that complies with tax laws.
 
Since I am a big one for insisting that people credential themselves before offering a lot of professional advice,
DAVE WAS THAT A JAB AT ME FROM THE OTHER DAY??? Yes around here lawyers seem to do most of it.
 

The death tax is just evil! It sure prevents many successful farmers from being able to hand the farm down intact. There is no reason the gooberment should be entitled to a cent!
 
Agreed. Don't hire a lawyer to do your tax work, just like you wouldn't hire a plumber to wire your house.
 
Can I play the devils advocate for just a minute? Like Dave says,there are plenty of ways to set up an estate or partnership to avoid it. If a family is in any kind of family partnership,it's just plain irresponsible not to get it done.
I didn't inherit anything. I'm third generation here,but my dad bought it from his dad,I bought it from him. Land contracts in both instances,it wasn't handed down. The home place wasn't enough,I bought four more places on bank mortgages. I paid 2x assessed value for the home place and two others,more than 2x assessed value for the others because the owners said they could get more for development,so I had to pay what they wanted. I've managed to make a living farming and pay it all off.
Just a question,but in a way,kind of a serious one. If I could pay for all of mine,why can't somebody get a good chunk of theirs free and pay half price or less for the rest?

I know,the government doesn't own it,and I'm not a fan of taxes. The question is,I guess,with that large of a headstart,and the fact that it can be avoided with some proper legal planning,why can't somebody make a go of it without having it all just handed to them?
 
(quoted from post at 17:33:24 02/12/16) Agreed. Don't hire a lawyer to do your tax work, just like you wouldn't hire a plumber to wire your house.
Click to expand...

Yeah, if the person leaving the estate has a good will then the govt. can pretty much be left out of it; just keep off of their radar. If the executor takes care of outstanding debts and follows the decedent's wishes as to funeral, viewing, burial and dispersal of assets by the will then, in my view, it's legal, fair and a 'done deal' BUT if everyone 'took care of business' this way there would be a lot of legal-types in the soup line. 8)
 
Gifting can drastically reduce estate taxes if you plan ahead. Some people hate the idea of gifting and loosing a little bit of control almost as much as they hate paying taxes.
 
You can gift without losing control, but it needs to be organized properly and all the steps need to be followed diligently to avoid IRS headaches. Randy sort of touched on it. A family limited partnership. Was extremely popular back in the days before they raised the exclusions. Sort of dropped off the radar for a bit, but now I hear about it more.
 
For your example of one or two million dollars the answer is ZERO dollars. One minute on google and you would have learned that the estate tax does not apply for estates of less than 5.45 Million dollars. By the way, it is the estate that pays not you the person born lucky enough to have parents who were able to put that much money together. If you are fortunate enough to inherit more tha 5 million I would suggest paying the taxes and not whining, those of us working and paying income tax on EVERY dollar might think you were whining.
 
I think rrlund was just using the two million number as an example in questioning how the tax would be calculated.
 
One of my cousins inherited her grandfathers farm not on her mother's, my side of the family, but rather her father's side of the family...but that's not how they did it. To avoid inheritance taxes and stuff, they did a "living trust" or "living will" where she doesn't technically own it, but she is the "executor" or "legal caretaker" or whatever they call it. In essence, she inherited it and farms it and all, but the way its worded or whatever, it then gets passed down, passed down, passed down where none of them own it, but do somehow from Grand Pa, whose name it stays in or something like that. I haven't sat it up, but will do the same. That way it stays in the family, none of them get killed in inheritance taxes generation after generation.

Of course...talk to a Real Estate attorney, or maybe go to "LegalZoom.com" and click on the "Wills Trusts" tab if you want to do it yourself. Thanks for the reminder Mr. Lund, I need to do that sooner than later.

Mark
 
Just a thought but if you paid tax on the original purchase then income tax on the money you earned to pay for it and in other words how many times does the government get a chance at that money? I believe in paying your fair share as long as it's used wisely and don't complain about taxes unless you vote.
But it's something to think about there has been farm's lost to families do to taxes if there's a gap in death between spouses and 2 taxes have to be paid
 
I had a meeting with our lawyer Thursday for this exact purpose. The OP numbers worked well for an example, easy math. The actual limit is $5.45M as stated later. I figure, if you have assets worth $5M, you can afford a team of experts to handle the transition planning. Those of us who do not have that kind of money, still need to plan for the inevitable, there are many ways to handle an estate, and ignoring it is one of them as well.

My own problem is not how to handle multiple children involved in the farm, but having none!
 
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