Sunday, August 30, 2009

The "Death Tax" is really the "Ooops, I died too soon" tax


By Ellipses

This post is a counterpoint to Cy's de facto support of the Estate Tax. I say "de facto" because his argument was less in favor of the Estate Tax as a matter of course than it was a push to use it as a bargaining chip in the health care debate.

I have no problem unambiguously coming out against the estate tax, at least as it stands within the context of today's United States Tax Code.

There is a robust and effective industry dedicated specifically to helping families legally avoid the impact of the estate tax. Almost every brokerage house will offer either free or fee-based estate planning services once the size of your account triggers this level of service.

Normally, the account holder will be audited to determine how much income they actually need to maintain their standard of living. Normally, the older the account holder is, the less actual income they require. Even though medical costs increase with age, other expenditures decrease. A freshly minted retiree will require a larger disbursement from his available funds on an annual basis than a similarly well-heeled 85 year old.

Once the required income level is determined, fund are allocated to ensure that income stream. A basket of fixed income vehicles is constructed to provide the necessary income.

The next step is to set up a vehicle that a) protects wealth and b) allows for some asset growth. Normally, an irrevocable trust is set up to house all the assets that are to be shielded from estate taxes. The trust is like "limbo" for investments. Neither the account holder nor the beneficiary can access funds in the trust, and those funds are allowed to grow tax free until the account holder dies and the trust is executed. The assets that go into the trust are normally transformed from the usual suspects (stocks, bonds, etc.) and put into life insurance policies. Because the account holder is probably older and in not the best of health, the insurance policies are bought at face value and in incremental purchases. You can buy a 100,000 dollar life insurance policy for 100,000 dollars and the value of that policy will grow over time and the insurer will probably take a portion of the returns. The reason for using insurance as the investment of choice in the trust is that insurance benefits are tax exempt. If I die and my wife gets a million dollars from my life insurance policy, that doesn't count as taxable income.

After the "money" part of the equation is guarded and a reasonable balance is struck between income needs and shielded assets, tangible property can be shared or transferred so that when the account holder dies, less property "changes hands."

The net result of all this planning is that when the account holder passes on, the "estate" that is settled is beneath the minimum threshold for estate taxes to kick in. Normal probate costs apply and perhaps some state taxes and other nickel and dime things occur, but on the whole, a reasonably high percentage of the official estate seamlessly changes hands. Then, the irrevocable trust is executed and a cascade of insurance benefits are disbursed.

The point is... one person, with a shit-ton of money and the right planning can have significantly less of their accumulated wealth eroded upon their death than another person with an equal or even lesser estate, but incorrect or insufficient planning. An old rich guy who gets diagnosed with inoperable cancer can ensure that his wealth is protected before he expires whereas another, equally rich guy who gets hit by a bus might lose half of his assets to taxation.

And that is just on the functional, logical side of the coin... there is also a philosophical point to be made that the estate tax essentially taxes someone's death. On Monday, they have X money. On Tuesday, they die. On Wednesday, they have X/2 money. The only intervening action that caused the reduction in the amount of money in the family was one person's death. Sphere: Related Content

31 comments:

Ellipses said...

You know, the google is dropping a big load of fail in placing pro-republican health care ads on this blog :-)

amom said...

I was just going to ask about that! How pathetic.

Cylinsier said...

I was wondering about that too. Fucking lobbyists.

MJ said...

Grandma looks very angry in that ad. Maybe she, too, wants the government out of her Medicare and Social Security.

Ellipses said...

It's rather comical in light of my email to MJ last week regarding the preponderance of "Meth" ads on his Jonesin' For Speed blog :-)

It's like Google is trying to be contrary...

Oh well... we banked 4 cents today in ad revenue... so who's complainin' ??

Elizabeth said...

Cy, You apparently have stooped to a new low to avoid ANY argument to your biased and narrow-minded opinions. Wes was the ONLY reason I read this dreadful blog! WES, START YOUR OWN!!!! Don't be derailed by this psycho. You have a legion of fans out here. And Cy, if Wes IS your Dad, what are you? - like 10 years old?! You certainly write like you are. BTW, I'm not your mom, but I'd like to fuck your "Dad".

Ellipses said...

The spectacle just gets better and better every day!

MJ said...

Did Wes just have gender reassignment surgery? You might want to check the IP on "Liz"

Cylinsier said...

Can't be sure, but its pretty likely that's my psycho step-mom.

Ellipses said...

Wow...

Seriously... wow.

Is she a great big fat bitch?

Cylinsier said...

She makes my dad look like Socrates in terms of levelheadedness.

Ellipses said...

Dude... your family is fucked up...

Coming from me, that's like the elephant man saying you are ugly.

Honestly, these people are supposed to command some sort of respect? To conduct themselves with dignity?

C'mon now... :-)

Cylinsier said...

My real mom is cool at least and my wife's family likes me. It evens out I guess. Plus it makes for great blogging!

Ellipses said...

I like you, too, buddy... I'll be your daddy :-)

Even though I am younger than you... and that sounds super duper gay...

Elizabeth said...

Check my IP, you morons! What has happened to debate on this blog?!?! I don't want to hear about Cy's familial problems any more than I want to know about your personal hygiene rituals!

Ellipses said...

You want debate? Then make a point...

"I want to fuck Cy's dad" is not a debatable point.

Estate tax: for or against? Why?

Cylinsier said...

So stop reading. Fuck. We are on par for 200 hits today, we don't need your horseshit.

Ellipses said...

Sometimes I use mouthwash before I brush my teeth, sometimes after...

I don't feel comfortable without deodorant on... I don't really have any pit odor issues, but deodorant seems to lubricate that sensitive skin under my arms and prevents sticking.

I have bitten my fingernails down to nothing ever since I have had teeth... my fingers look like E.T. fingers... without the flashlight

Elizabeth said...

El, I am not an economist, but I am pragmatic. The estate tax is a triple tax. First, I pay taxes on my earned income; second, I pay capital gains on any money I earn off that income; third, I pay an estate tax on all the income I want to leave to my children. How is that fair? BTW, TMI on the hygiene, although interesting. It is Elizabeth, not Liz.

Ellipses said...

Elizabeth... one could make an argument that it isn't fair that some kids get a boatload of cheddar dropped in their lap when Uncle Microsoft kicks the bucket...

But really, what does "fair" have to do with anything...? And honestly, it probably is well beyond the third time your capital was taxed... The point is, you can get around it... if you were to tax all inheritance at 5% (and include insurance benefits) you would probably net a hell of a lot more than taxing large estates at 50% or whatever level it works out to be...

If you set a minimum level, someone is going to make a boatload of money helping people get under the cap.

Wesley said...

Holy shit!….I go away for a few hours and when I come back I hear Billie Jean playing and Cy moon-walking his Daddy issues across the elliptical stage. (Can a person be served paternity papers through his IP address? I NOW know
you can be fucked through your IP address.) I am extremely flattered at your offer Elizabeth but you must have me confused with my ex who was a serial adulterer. You are right Cyli this is a lot like Jerry Springer only more nauseating. I fact I just threw up a little in my mouth.

But Cydude, you really need to lighten up… “son.” LOL! It seems like only yesterday that YOU said “I only attacked you personally as a form of welcoming you to the blog! Kind of a digital gut check. That you came back proves you have the thick skin needed to roll with the punches. So you can be my friend now.” (Please see August 5, 2009 4:21 PM "McCarthyism is the opiate of the masses") Where in the hell is all that thick skin now? The point is….you set the tone and tenor in the beginning and now you are whimpering about name calling. If you can’t take the heat you should have never invited me into the kitchen.

But let me understand this; rather than debate me on the merits of my arguments, you would rather delete my posts, attempt to redirect my IP address, and ultimately in an attempt to make sure you cyliense me forever you resort to standard liberal tactics…you change the subject and attack me personally. (Everyone is thinking right now that you rely too much on cheat codes when you play video games.)

Seriously Cy, some of if not a majority of your readers have to be be thinking your dad and a mom are probably like their moms and dads. They are thinking your parents were people who, at one point in their lives, wrote a blank check made payable to Cylensier for an amount of up to and including their lives. They are probably thinking that in their time, they have known quite a few rebels without a clue just like you, and they know in their hearts that this was some cold shit you brought down into the blogishpere.

Check it out, it seems you have told your readers more about the kind of man you are rather than what kind of people your parents were.

Ellipses said...

Your comments, in light of Cy's revelation, say more about you as a man than any introspective inferences that you could make about your son.

As I sit here, looking at my 10 month old son... I can't imagine seriously engaging with him on the level that you have engaged your son... regardless of what his political views develop into... regardless of what path he takes...

Cylinsier said...

Moral support ftw!

Gertrude said...

“Rebel without a clue” does not generally bring to mind the well-educated, fully-employed, well-adjusted blogger… You must be confused. Cy is a great guy and if you don’t feel like noticing then you’re the one without a clue.

scott said...

Wesley, if he ever does stake out his own blog space, should name it Troll Dad.

Chan said...

Cool web site! Who are you going to out next? I can't wait. Is it just the people you disagree with or do you peel back on everyone? Awesome fun!

Ellipses said...

I think we stick to family members who go incognito to be a dick... if you are just some random schmuck who likes to be a dick, you should be fine... :-)

conspi said...

LOL Chan! I was just thinking the same thing. All this talk about Evil Wes and poor Cy and then they never have to counter Wes's arguments. I think its only the people that disagree with them that get outed. It looks like they already know the ones that agree.

conspi said...

how was Wes a dick? did I miss something?

scott said...

Never countering Wes' arguments? Perhaps you should visit your optometrist, because your myopia's getting the better of you. Just going back through a few posts here and reading the comments proves how empty your claim is.

Ellipses said...

For the record, I took up about 800 yards of internet real estate to counter one of Wesley's earliest posts...

I love point-counterpoint venues (which is kind of how this blog works, over time) ... and I was happy to (and still am) engage Wes on his points... But really, the fact that he is Cy's dad is like super awesome content... That would be like someone calling into Hannity's radio show and just saying FUCKSHITASSCUNTDICK and hanging up over and over again... only to come to find out that it is Alan Combs (sp?)