Last week, I listened to a news program on a bill passed by the House of Representatives that would repeal the “death tax”. The amount of misinformation was incredible.
Statement 1: The estate tax just taxes property that has already been taxed.
Truth: Most estates that are subject to Federal estate tax have significant assets that have appreciated in value since purchase, whether it is real estate, business or stocks. For example, if I bought Apple stock a long time ago, I could have paid $60,000 for shares that today would be worth almost 8 million dollars today. The appreciation in the Apple stock has never been taxed and, if it is inherited, the person(s) who inherit the stock can sell it the day after the decedent’s death and there would be no capital gains tax (which if sold during life could be taxed at 23.8%, plus state income taxes).
Statement 2: The estate tax takes prevents family farms and businesses from being passed to the next generation.
Truth: 99.6% or more of the persons will not be subject to the Federal estate tax when they die. For a married couple, your assets must exceed almost $11,000,000 before there would be an estate tax. Most family business fail to survive into the second or third generation, not because of estate taxes, but because of the failure to plan for the business succession and because of family conflict.
Statement 3: Most people do not like the estate tax and would want it be repealed.
Truth: Of course, no one likes taxes, whether it is personal income taxes, corporate income taxes, capital gains taxes or estate taxes. In my opinion, what we need is a total revision of our tax code, to make it more fair, with less ways to avoid taxes. But reducing or eliminating estate taxes, without considering overall income tax and budgetary policy, does not make sense.
As an estate planning attorney, taxes are something that can be avoided or minimized, with planning. More importantly, everyone needs to plan for the transition of their assets to the next generation to make sure the inheritances are protected, used and invested in an appropriate manner.