Posts Tagged ‘estate taxes’

Death and taxes?

Monday, December 21st, 2009

As crazy as it may seem, there is actually such a thing as a “death tax,” and it’s exactly what it sounds like: the government does, in a manner of speaking, charge you money for dying. But since you, being deceased, are obviously not in a position to make any payments, it’s your heirs who have to take care of death taxes, also known as inheritance tax and estate tax.

Inheritance tax is the tax you have to pay in exchange for inheriting money in someone’s will; estate tax is the same principle applied to property instead of money. While these taxes are often staggeringly high – they’re currently at up to 45% and expected to grow in the years to come – they only apply to extremely high net worth estates (over $3.5 million as of 2009). Inheritance and estate taxes have long been controversial; their supporters argue that inheritors didn’t earn any of these assets themselves and so should have to surrender a big chunk of them to the government, while detractors say that people work hard to earn money with the expectation that it’ll be there to make their children’s lives easier. Some people attempt to set up complicated networks of trusts in order to avoid these taxes, but it isn’t easy to do so. The Bush administration attempted, unsuccessfully, to phase out inheritance and estate taxes, but for the present it seems that, much like death, they’re simply a fact of life.

It’s important to know, though, that the tax laws surrounding death can vary somewhat from state to state. Make sure to check with your local tax authority before dying.

Recession Or Not, The Wealthy Are Passing

Thursday, October 22nd, 2009

There are some ways that money moves around in an economy that have very little to do with the stock market or unemployment statistics.

  • Even though the recession has ruined many a good portfolio, Boston College’s Center on Wealth and Philanthropy is predicting a “golden age of philanthropy” between 1998 and 2052.
  • Wealthy individuals often distribute their assets at death among heirs, tax payments, charities, and legal fees, and these distributions are largely unaffected by the current economic climate. As a result, analysts project that this is the largest wave of charitable giving ever in the United States.
  • Some people, though, are donating large chunks of their net worth while they are still alive, thereby eliminating the portion that would typically go to the government after death, and confounding the researchers at Boston’s CWR.

Facts & Figures

  • CWR researchers projected an overall wealth transfer of $41 trillion between 1998 and 2052, mostly as resulting from asset exchanges at death.
  • The $41 trillion estimate still applies during the recession because researchers used a very conservative 2% annual increase in wealth in their calculations.
  • Federal data show approximately $12 trillion being transferred to heirs between 1998 and 2017.

Best Quote

“The downturn is not going to keep people from dying, and it is not going to keep a wealth transfer from occurring.” – Paul Schervish, Director of The Center on Wealth and Philanthropy at Boston College