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From TFA: > But even there either the heirs are withdrawing money to spend or they aren’t. If they are, it gets taxed. Under current US tax law, the heirs are

From TFA: > But even there either the heirs are withdrawing money to spend or they aren’t. If they are, it gets taxed. Under current US tax law, the heirs are inheriting the assets on a "stepped-up" value basis, i.e., any gains realized BEFORE they inherited the assets are NEVER taxed. The fact that this detail is not mentioned once in the article means that the author either is not as knowledgeable about finance as they present themselves, or they are, themselves, trying to sell a "BS Tax Story".

wmf 5y ago
Isn't the basis stepped up after estate tax is paid? So if you die holding stock no tax is avoided.
- vmh1928 5y ago
  any capital asset is stepped up currently. https://www.kiplinger.com/retirement/estate-planning/602701/biden-hopes-to-eliminate-stepped-up-basis-for-millionaires https://www.kiplinger.com/retirement/estate-planning/602701/...
jeremy_arnold 5y ago
OP here. ProPublica made the same argument. Maybe I should have covered it. Here's why that step-up doesn't really matter. For round numbers, let's imagine Bezos acquires shares of Amazon at $1 each. Fast forward a few decades and they're now worth $100 each. He's accrued $99 in taxable gains. But he blows up in space, so it's all left for heirs. At transfer, the cap gains part is thrown away. But this is only to avoid double taxation, as the heirs now pay 40% on current market value for assets > $1m. Making them pay 20% CG on $99 and 40% would be far too high. So the gov lets them only pay 40% on ~$100, which is roughly 2x the total receipts. (If the assets are left in trust, you can avoid the estate taxes. But then you're back to paying cap gains when the money is withdrawn.) EDIT: Technically it's assets over $1m + other exemptions and deductions. In practice it kicks in more like $10-12m depending on particulars. But the amounts in question here are way, way above that baseline.
- spbaar 5y ago
  You say that would be double taxation, but that's only because bezos avoided taxation entirely on that appreciation while alive, a nice perk the vast majority don't get. So really with the most modest reform you tax the appreciation 20% cg then estate tax on the remainder. Considering all that appreciation compounded without tax for years, they still make out astoundingly well
  - AlexandrB 5y ago
    I think this is the right analysis. If Bezos has sold all that stock the day before he died, he would have owed capital gains on it and the remainder would be inherited. That's roughly the same situation as described with the liquidity event moved a few days yet it's not "double taxation".
    - jkhdigital 5y ago
      No that’s just bad estate planning… kind of like how a pair of rich siblings could gift each other $1 million and it would be taxed as income for both despite neither experiencing any change in wealth. Income taxation is impossible to implement without logical inconsistencies.
      - loeg 5y ago
        > how a pair of rich siblings could gift each other $1 million and it would be taxed as income for both despite neither experiencing any change in wealth No. Gift taxes are paid by the gifter. Gifts are not income for the recipient. Additionally, there are annual and lifetime exclusions for gift tax.
        dragonwriter 5y ago
        > Gifts are not income for the recipient. They manifestly are income for the recipient. They aren't taxed as such, though, because undertaxing income through generational wealth transfer is how you preserve a privileged elite. > Additionally, there are annual and lifetime exclusions for gift tax. The annual per-recipient limits are large, only amounts over them count against the lifetime limit, and the lifetime limit is enormous.
Rebelgecko 5y ago
I'm not sure where the advantage is there. When you're talking about significant inheritances (like, $25m and beyond) the estate tax on the stock is going to be more expensive than it would've been to just pay the un-steppedup capital gains. Unless maybe there's workarounds to avoid estate taxes?
WalterBright 5y ago
> are NEVER taxed You still pay the estate tax (40%), even with the stepped up gains. Biden's plan is to pay income tax on the gains, and then the estate tax on the rest. Or vice versa, the news reporting on this has been deficient.

wmf 5y ago

Isn't the basis stepped up after estate tax is paid? So if you die holding stock no tax is avoided.

vmh1928 5y ago
any capital asset is stepped up currently. https://www.kiplinger.com/retirement/estate-planning/602701/biden-hopes-to-eliminate-stepped-up-basis-for-millionaires https://www.kiplinger.com/retirement/estate-planning/602701/...

jeremy_arnold 5y ago

OP here. ProPublica made the same argument. Maybe I should have covered it. Here's why that step-up doesn't really matter. For round numbers, let's imagine Bezos acquires shares of Amazon at $1 each. Fast forward a few decades and they're now worth $100 each. He's accrued $99 in taxable gains. But he blows up in space, so it's all left for heirs. At transfer, the cap gains part is thrown away. But this is only to avoid double taxation, as the heirs now pay 40% on current market value for assets > $1m. Making them pay 20% CG on $99 and 40% would be far too high. So the gov lets them only pay 40% on ~$100, which is roughly 2x the total receipts. (If the assets are left in trust, you can avoid the estate taxes. But then you're back to paying cap gains when the money is withdrawn.) EDIT: Technically it's assets over $1m + other exemptions and deductions. In practice it kicks in more like $10-12m depending on particulars. But the amounts in question here are way, way above that baseline.

spbaar 5y ago
You say that would be double taxation, but that's only because bezos avoided taxation entirely on that appreciation while alive, a nice perk the vast majority don't get. So really with the most modest reform you tax the appreciation 20% cg then estate tax on the remainder. Considering all that appreciation compounded without tax for years, they still make out astoundingly well
- AlexandrB 5y ago
  I think this is the right analysis. If Bezos has sold all that stock the day before he died, he would have owed capital gains on it and the remainder would be inherited. That's roughly the same situation as described with the liquidity event moved a few days yet it's not "double taxation".
  - jkhdigital 5y ago
    No that’s just bad estate planning… kind of like how a pair of rich siblings could gift each other $1 million and it would be taxed as income for both despite neither experiencing any change in wealth. Income taxation is impossible to implement without logical inconsistencies.
    - loeg 5y ago
      > how a pair of rich siblings could gift each other $1 million and it would be taxed as income for both despite neither experiencing any change in wealth No. Gift taxes are paid by the gifter. Gifts are not income for the recipient. Additionally, there are annual and lifetime exclusions for gift tax.
      - dragonwriter 5y ago
        > Gifts are not income for the recipient. They manifestly are income for the recipient. They aren't taxed as such, though, because undertaxing income through generational wealth transfer is how you preserve a privileged elite. > Additionally, there are annual and lifetime exclusions for gift tax. The annual per-recipient limits are large, only amounts over them count against the lifetime limit, and the lifetime limit is enormous.

Rebelgecko 5y ago

I'm not sure where the advantage is there. When you're talking about significant inheritances (like, $25m and beyond) the estate tax on the stock is going to be more expensive than it would've been to just pay the un-steppedup capital gains. Unless maybe there's workarounds to avoid estate taxes?

WalterBright 5y ago

> are NEVER taxed You still pay the estate tax (40%), even with the stepped up gains. Biden's plan is to pay income tax on the gains, and then the estate tax on the rest. Or vice versa, the news reporting on this has been deficient.