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One of the reasons Bill Gate's father among others were campaigning against the repeal of "Estate Taxes" was so we wouldn't have a permanent wealthy class in t

One of the reasons Bill Gate's father among others were campaigning against the repeal of "Estate Taxes" was so we wouldn't have a permanent wealthy class in the US. (Estate taxes are taxes paid on your money when you pass away before being distributed. Right now I think its only on holdings over 5million) http://billmoyers.com/2015/04/18/william-gates-sr/ http://billmoyers.com/2015/04/18/william-gates-sr/

wahern 10y ago
Unfortunately, several states have repealed the common law rule against perpetuities entirely. Long story short, rich people can create trusts that pay a steady income to their families for as long as they want, including for hundreds of years. There's no estate tax upon your death because the assets were already transferred. The assets aren't taxed on transfer, either, but only as they're paid out to the beneficiaries. The effect is as if the original grantor (your great Uncle Gates) was immortal, giving out stipends to his descendants. You don't hear about this much because the state laws are only a few decades old, but the repercussions play out over generations. It'll become a thing in another 100 years or so when people finally realize what's happening. Before this the trick was to use corporations. Maybe nominally non-profit, but mostly existing to employ the descendants. That's still a good idea depending on what you're trying to accomplish. Like with trusts you create it in a state with friendly legislation. It sucks that conservatives are so hell-bent on repealing the estate tax, but it's really not a battle worth fighting over. The war was lost long ago. What nominal revenue the estate tax brings in has been shrinking for awhile, and it'll eventually shrink to nothing. At this point people are just fighting for an idea. And I literally mean _just_ an idea. Retaining the estate tax won't stop anything, and it might give people a false sense of comfort. Maybe better to let it get repealed, then hope that in a few generations there's enough backlash to not only restore the estate tax, but to foreclose the alternatives as well.
- walterbell 10y ago
  Do you have a reference on the states and trusts which need to be foreclosed?
  - wahern 10y ago
    A quick Google search found a PDF with this list: Eight states have repealed the rule against perpetuities. These states are Alaska (repealed the rule for vesting of property interests), Delaware (repealed entirely for personal property interest held in trust; 110 year rule for real property held directly in trust), Idaho, Kentucky (repealing the rule interests in real or personal property), New Jersey, Pennsylvania, Rhode Island, South Dakota. Nine states have adopted longer fixed periods for the rule against perpetuities, sometimes only for certain types of property. These states are Alabama (100 years for property not in trust; 360 years for property in trust), Arizona (500 years), Colorado (1,000 years), Delaware (110 years for real property held in trust); Florida (360 years), Nevada (365 years), Tennessee (360 years), Utah (1,000 years), Washington (150 years). Source: http://www.actec.org/assets/1/6/Zaritsky_RAP_Survey.pdf In those states--even the ones with the absent or absurdly long vesting period limitations--there may be other rules that make it hostile for multi-generational trusts. But I'm pretty sure that in at least a few of them you can do exactly that. But I don't know enough about estate law to be able to point them out without further research. Much like the laws leveraged by lawyers and accountants who help the rich move their money off-shore, they don't generally discuss this stuff in public forums. But it's not nearly as secret or esoteric, so with some effort it should be easy to figure out which states are attracting the most business, so to speak.
    - nugget 10y ago
      Trusts are able to move as well - so if a state passes unfavorable trust laws, trusts can (and will) re-domicile into friendlier jurisdictions.
    - wahern 10y ago
      Which reminds me: there are of course plenty of foreign jurisdictions that allow you to create multi-generational trusts (or trust-like devices) without any problem. If you were establishing a multi-generational trust you'd want to put it in a politically, economically, and legally stable jurisdiction. Historically those options were limited to the U.S., U.K., and maybe a couple of other European nations. That's less the case now. But who knows what the world will look like in a 100 years. There's plenty of reason to want to keep money in the U.S. So I wouldn't argue that U.S. law is inconsequential in the face of foreign options. I just don't see us returning to an earlier time wrt restraints on generational wealth transfers. The viability of foreign options makes it even more difficult to reverse the trend.
- nugget 10y ago
  It's become painful to me to listen to most well-intentioned folks debate estate taxes and wealth inequality. So few understand what wahern describes above. The whole debate is a school of red herrings. European tax law is even more of a mess than the US in this regard; even if some practices are eventually ended here, whether in 10 years or 100 years, I have little doubt they will continue on unabated most everywhere else.
  - kbart 10y ago
    There is no such thing as "European tax law" as every European country has different tax system (i.e. some tax estate, some don't). Though some EU wide regulations apply. Furthermore, European countries are among the most equal countries by wealth in World[0], so it's not fair to to call it "red herring". 0. https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...
  - jstanley 10y ago
    > It's become painful to me to listen to most well-intentioned folks debate estate taxes and wealth inequality. So few understand what wahern describes above. Can you talk us through what exactly it is that we misunderstand, and what the correction would be?
    - rconti 10y ago
      nugget was concurring with what the parent post said; that people don't understand that the wealth tax is irrelevant and that money is instead passed down via trusts that are designed so as not touched by the wealth tax.
      - learnstats2 10y ago
        If a wealth tax has a loophole exception for wealth, is it really a wealth tax at all?
  - wuschel 10y ago
    Interesting comments, wahern and nugget. Could you elaborate or point to some primary/secondary sources? Control of the distribution of wealth and income is certainly a tricky, multi-faceted challenge that society had to face since the beginning of civilization, and certainly will have to face many a day.
- MR4D 10y ago
  I mostly agree with your post. As a financial planner by trade, I'd like to add to it. In the proposals floating around to repeal the estate tax, there is at least one that suggests repealing the tax entirely but then not giving estates the step up in cost basis. This has a set of interesting results, including paying no tax until an asset is sold. For instance, if your parents bought at&t stock at $10, and it's worth $20 when you inherit it, you pay no tax. But when you sell it, let's say at $25, you will pay capital gains tax on the difference between the sell price and the _original_ buy price. Estate tax right now gives a step up in the cost basis regardless of whether the tax limit (roughly $10million) is ever hit. And just to cover the topic, there are two main reasons against the estate tax. The first is that the state has no right to that money. The second, thought, is much more problematic. If you inherit a business, valued at $20 million, you'd have to pay estate tax of roughly $5 million upon your inheritance. If you just owned the at&t stock I referred to above, no big deal - sell some, pay the tax, and walk away with your remaining $15 million. But if you have a family business, the effects can kill the business. For instance, if your parents own a retail outlet or manufacturing facility, you can't easily sell part of it. The US has never had an issue with permanent wealth like Europe has, even for the hundreds of years before the estate tax was put in place.
refurb 10y ago
Countries without estate taxes: Canada, Australia, New Zealand, Norway, Sweden, etc. [1]https://taxfoundation.org/estate-and-inheritance-taxes-around-world/ https://taxfoundation.org/estate-and-inheritance-taxes-aroun...
valuearb 10y ago
Yea, I don't think higher estate taxes will change income distribution at all. There are many ways to pass money, and the real problem isn't inheritance, it's the insider class whose political connections get them government subsidies, handouts, competitive barriers, etc, to get far richer than they could in a free society.
dbcurtis 10y ago
A low estate tax threshold is the destroyer of individual proprietorships and family farms. The impact on farm families is particularly caustic. If you want a world where only large corporations can farm, raise estate taxes.
- _delirium 10y ago
  The current U.S. federal estate tax threshold is so high ($5.5m for an individual, or $11m for a couple) that it only hits the wealthiest 0.2% of estates, not your typical small businessperson. In addition, a large proportion of the "family farms" complaining about the estate tax are sham farms, essentially real-estate investment vehicles that throw a handful of cows on them in order to qualify for farm subsidies and property-tax exemptions. This is an especially popular kind of "family farm" in exurban Texas. There are genuine family farms, but they are much rarer than the number on paper, and typically don't, coincidentally, happen to hold as much prime investment land.
  - dbcurtis 10y ago
    Well, your anecdote may apply in Texas. It does not match the experience of my extended family in Iowa and Minnesota. (currently doing estate taxes for my father-in-law's dairy farm, FWIW). The current estate tax threshold largely misses real family farms, but it doesn't have to move much to become a disaster. When I was in high school I personally witnessed neighbor widdows being beggared by the then ridiculous estate tax threshold. That memory is seared into my brain.
deleted 10y ago
[deleted]

wahern 10y ago

Unfortunately, several states have repealed the common law rule against perpetuities entirely. Long story short, rich people can create trusts that pay a steady income to their families for as long as they want, including for hundreds of years. There's no estate tax upon your death because the assets were already transferred. The assets aren't taxed on transfer, either, but only as they're paid out to the beneficiaries. The effect is as if the original grantor (your great Uncle Gates) was immortal, giving out stipends to his descendants. You don't hear about this much because the state laws are only a few decades old, but the repercussions play out over generations. It'll become a thing in another 100 years or so when people finally realize what's happening. Before this the trick was to use corporations. Maybe nominally non-profit, but mostly existing to employ the descendants. That's still a good idea depending on what you're trying to accomplish. Like with trusts you create it in a state with friendly legislation. It sucks that conservatives are so hell-bent on repealing the estate tax, but it's really not a battle worth fighting over. The war was lost long ago. What nominal revenue the estate tax brings in has been shrinking for awhile, and it'll eventually shrink to nothing. At this point people are just fighting for an idea. And I literally mean _just_ an idea. Retaining the estate tax won't stop anything, and it might give people a false sense of comfort. Maybe better to let it get repealed, then hope that in a few generations there's enough backlash to not only restore the estate tax, but to foreclose the alternatives as well.

walterbell 10y ago
Do you have a reference on the states and trusts which need to be foreclosed?
- wahern 10y ago
  A quick Google search found a PDF with this list: Eight states have repealed the rule against perpetuities. These states are Alaska (repealed the rule for vesting of property interests), Delaware (repealed entirely for personal property interest held in trust; 110 year rule for real property held directly in trust), Idaho, Kentucky (repealing the rule interests in real or personal property), New Jersey, Pennsylvania, Rhode Island, South Dakota. Nine states have adopted longer fixed periods for the rule against perpetuities, sometimes only for certain types of property. These states are Alabama (100 years for property not in trust; 360 years for property in trust), Arizona (500 years), Colorado (1,000 years), Delaware (110 years for real property held in trust); Florida (360 years), Nevada (365 years), Tennessee (360 years), Utah (1,000 years), Washington (150 years). Source: http://www.actec.org/assets/1/6/Zaritsky_RAP_Survey.pdf In those states--even the ones with the absent or absurdly long vesting period limitations--there may be other rules that make it hostile for multi-generational trusts. But I'm pretty sure that in at least a few of them you can do exactly that. But I don't know enough about estate law to be able to point them out without further research. Much like the laws leveraged by lawyers and accountants who help the rich move their money off-shore, they don't generally discuss this stuff in public forums. But it's not nearly as secret or esoteric, so with some effort it should be easy to figure out which states are attracting the most business, so to speak.
  - nugget 10y ago
    Trusts are able to move as well - so if a state passes unfavorable trust laws, trusts can (and will) re-domicile into friendlier jurisdictions.
  - wahern 10y ago
    Which reminds me: there are of course plenty of foreign jurisdictions that allow you to create multi-generational trusts (or trust-like devices) without any problem. If you were establishing a multi-generational trust you'd want to put it in a politically, economically, and legally stable jurisdiction. Historically those options were limited to the U.S., U.K., and maybe a couple of other European nations. That's less the case now. But who knows what the world will look like in a 100 years. There's plenty of reason to want to keep money in the U.S. So I wouldn't argue that U.S. law is inconsequential in the face of foreign options. I just don't see us returning to an earlier time wrt restraints on generational wealth transfers. The viability of foreign options makes it even more difficult to reverse the trend.
nugget 10y ago
It's become painful to me to listen to most well-intentioned folks debate estate taxes and wealth inequality. So few understand what wahern describes above. The whole debate is a school of red herrings. European tax law is even more of a mess than the US in this regard; even if some practices are eventually ended here, whether in 10 years or 100 years, I have little doubt they will continue on unabated most everywhere else.
- kbart 10y ago
  There is no such thing as "European tax law" as every European country has different tax system (i.e. some tax estate, some don't). Though some EU wide regulations apply. Furthermore, European countries are among the most equal countries by wealth in World[0], so it's not fair to to call it "red herring". 0. https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...
- jstanley 10y ago
  > It's become painful to me to listen to most well-intentioned folks debate estate taxes and wealth inequality. So few understand what wahern describes above. Can you talk us through what exactly it is that we misunderstand, and what the correction would be?
  - rconti 10y ago
    nugget was concurring with what the parent post said; that people don't understand that the wealth tax is irrelevant and that money is instead passed down via trusts that are designed so as not touched by the wealth tax.
    - learnstats2 10y ago
      If a wealth tax has a loophole exception for wealth, is it really a wealth tax at all?
- wuschel 10y ago
  Interesting comments, wahern and nugget. Could you elaborate or point to some primary/secondary sources? Control of the distribution of wealth and income is certainly a tricky, multi-faceted challenge that society had to face since the beginning of civilization, and certainly will have to face many a day.
MR4D 10y ago
I mostly agree with your post. As a financial planner by trade, I'd like to add to it. In the proposals floating around to repeal the estate tax, there is at least one that suggests repealing the tax entirely but then not giving estates the step up in cost basis. This has a set of interesting results, including paying no tax until an asset is sold. For instance, if your parents bought at&t stock at $10, and it's worth $20 when you inherit it, you pay no tax. But when you sell it, let's say at $25, you will pay capital gains tax on the difference between the sell price and the _original_ buy price. Estate tax right now gives a step up in the cost basis regardless of whether the tax limit (roughly $10million) is ever hit. And just to cover the topic, there are two main reasons against the estate tax. The first is that the state has no right to that money. The second, thought, is much more problematic. If you inherit a business, valued at $20 million, you'd have to pay estate tax of roughly $5 million upon your inheritance. If you just owned the at&t stock I referred to above, no big deal - sell some, pay the tax, and walk away with your remaining $15 million. But if you have a family business, the effects can kill the business. For instance, if your parents own a retail outlet or manufacturing facility, you can't easily sell part of it. The US has never had an issue with permanent wealth like Europe has, even for the hundreds of years before the estate tax was put in place.

refurb 10y ago

Countries without estate taxes: Canada, Australia, New Zealand, Norway, Sweden, etc. [1]https://taxfoundation.org/estate-and-inheritance-taxes-around-world/ https://taxfoundation.org/estate-and-inheritance-taxes-aroun...

valuearb 10y ago

Yea, I don't think higher estate taxes will change income distribution at all. There are many ways to pass money, and the real problem isn't inheritance, it's the insider class whose political connections get them government subsidies, handouts, competitive barriers, etc, to get far richer than they could in a free society.

dbcurtis 10y ago

A low estate tax threshold is the destroyer of individual proprietorships and family farms. The impact on farm families is particularly caustic. If you want a world where only large corporations can farm, raise estate taxes.

_delirium 10y ago
The current U.S. federal estate tax threshold is so high ($5.5m for an individual, or $11m for a couple) that it only hits the wealthiest 0.2% of estates, not your typical small businessperson. In addition, a large proportion of the "family farms" complaining about the estate tax are sham farms, essentially real-estate investment vehicles that throw a handful of cows on them in order to qualify for farm subsidies and property-tax exemptions. This is an especially popular kind of "family farm" in exurban Texas. There are genuine family farms, but they are much rarer than the number on paper, and typically don't, coincidentally, happen to hold as much prime investment land.
- dbcurtis 10y ago
  Well, your anecdote may apply in Texas. It does not match the experience of my extended family in Iowa and Minnesota. (currently doing estate taxes for my father-in-law's dairy farm, FWIW). The current estate tax threshold largely misses real family farms, but it doesn't have to move much to become a disaster. When I was in high school I personally witnessed neighbor widdows being beggared by the then ridiculous estate tax threshold. That memory is seared into my brain.

deleted 10y ago

[deleted]