Yikes, I first read that as “federal execution”. Oh boy.
My kids have been on this kick the for the last week or so constantly asking about the exemption amount and what it is and means and about gifting, etc. What happens if you gift someone $250k and they then gift it back, yada yada. But a lot of it are the same questions over and over related to the $11m lifetime exclusion. I had to ask back what the deal is as it doesn’t apply to us and it won’t so they don’t need to worry about it, lol. Maybe wishful thinking on their part.
And I agree, I would much rather give money to charity than pay it to taxes. So if I can help people who can really use it and that helps me avoid paying taxes, then you can sure as hell bet I will be doing that. There are so many hungry people out there and the last week of December I made an extra donation because the CARES act allowed for it. Would I have made it otherwise in 2020? Admittedly, no. I would’ve waited until this year when I had a chance to look at things, but there’s nothing wrong with accelerating a charitable donation and making it a win win for everyone.
It’s the estate that is taxed, not what each heir inherits so it doesn’t matter if there is 1 heir or 10 heirs. So if I die with $12m which is not asset protected, it’s not first divided by my 4 heirs as if they each receive $3m and then taxes paid on that. The taxes are paid first before it’s distributed, because it’s based on my estate. So while $12m is a great amount for me to have, I live in a state with a low estate tax exemption ($4m is exempt and estate taxes start at 28%) and a high tax, plus there would be some federal amount (of course again assuming there’s no asset protection) so my kids would not each receive $3m at the end of the day and while $3m is a heck of a lot of money, it is certainly not going to last the rest of someone’s life if they’re 30 year’s old so they better have some damn good jobs. If however, my goal was wealth preservation and asset protection, then maybe they would at least receive the bulk of the $3m as opposed to only a portion of it after taxes.
In my example of my state, forgetting Federal. I die with $11. $4m is exempt, $7 million is taxed at 28% minimum, that leaves no more than about $5m of the $7m. So the total amount to be split 4 ways is closer to $9m so each kid gets at most $2.25. And again, 28% is where tax begins after exemption in my state. Then you have to deal with legal fees, executor costs, funeral costs, etc. Kids won’t get close to $2.25 each. Again, to some it’s a windfall, but not when they see a parent with $11m. So of course, proper planning both estate and wealth protection is key and this includes charitable giving.
Yes, I know. That’s why I responded to the point about someone getting $11 million being described as screwed. That assumes there is one heir, which is not the right way to look at it (usually), because it’s the estate that is taxed.
I’ve seen somevery wealthy people move to FL, NH and other states with high tax exemptions ( or just a better deal). The really wealthy move it offshore.
I wonder what % of super high net worth individuals die intestate? I would bet it it higher than expected.
Going back to deciding when to retire…I think people need to really think about multiple things.
Finances - some people just can’t realistically retire early (I know people who are concerned that they may never retire). Someone mentioned healthcare costs and yes they can be substantial. H and I were planning to continue my hc benefits via COBRA until age 65. The budget for that was $22K/year. We can afford that but then thankfully found out I qualify for retiree healthcare at $5K/year. Big difference especially if one has to pay that for multiple years.
What to do? Some people have a lot of interests, but not everyone. The people I know who are loving retirement are those who are doing things. I have known several people who are/were bored in retirement or spent 16 hours a day watching TV and eating.
Division of labor - a know women who were unhappy with retired husbands who expected their wives to continue cooking, cleaning, laundry, etc while they had all kinds of free time. The women want to know why THEY don’t get to retire.
That said, I am retiring at the end of this month and H will retire in a few months. We have gone over our finances with our financial advisor, talked about where we will relocate (we are planning to in 2022 ) and how we will keep busy. I was worried about H finding things to do (he doesn’t have as many hobbies as I do), but he was not working for a few months in 2020 due to the pandemic and did fine). H has always been good about doing his share around the house (especially after I went back to work).
For me a lottery ticket is useful only if I have had a particularly bad day of work. For a couple of bucks I buy the fantasy that I can quit the next day. Cheap therapy.
My personal philosophy re: inheritances is that no one should expect one, and everyone should be grateful for the windfall no matter the size. People need to prioritize their own quality of life however they define it and plan for an expensive old age, before setting aside inheritances for their children. I don’t expect an inheritance from my parents, and hope my parents use every penny of their hard earned money on themselves.
For me, charity is important, and hopefully people can see the difference their contributions make while they are still alive.
I hear what you are saying about the money having already been taxed, and would also prefer money going to a charity than government. However, there are some interesting side effects to that when you get into family charitable foundations of the size that can drive politics by where they put their money. It gives individuals an outsized cultural influence. Their projects become all of our projects.
As for my family, paying for education, any specialized health care, and maybe setting kids up with a down payment in a starter home so they can start adult life debt free, is a profound gift. Along the way, if we can pay for family trips, etc fantastic. And if we can help ease family stress/crises, wonderful.
The federal exemption amount used to around $1 million, there is no reason to think it can’t/won’t go back to that amount (or less) in our lifetime.
My state (MA) never followed the Federal changes, so the exemption is still $1 mil. And there’s a cliff - $1 over the exemption amount and you pay on the entire $1 mil. And it’s not portable.
So if you have a “reasonable” estate of a couple million (which is not that hard for upper middle income families in areas with high RE appreciation) and the rules go back to the way they were, your estate could easily pay 50+% in taxes.
I’d certainly prefer as much as possible go to my heirs or charity instead of the govt.
Some people might be afraid of not having enough money for large medical bills. But $10 million seems like more than enough to self-pay for that, even if Medicare gets cut.
If they had four grandkids, then even if all of them went to full pay private college followed by full pay medical or dental school, that would use up “only” about $3 million out of the $10 million.
Yes, I live in MA too. Makes me think we need to revisit the estate plan. I think taxes will go higher in the next 20 years. That cuts across the board. There is a tendency also to think the wealthy have too much money so I’d expect estate taxes to stay high and the 11 million Federal to fall.
I also feel as though I don’t want my kids to live their lives thinking they will inherit a windfall. I’d rather they do what they want and make their own money. I’m in for any education and an emergency fund. I think we’d set it up so our kids didn’t know how much was in the estate and if they received money it was tied to things like education, charity and starting a business. Haven’t gotten that far as we are too young and not retired yet. Plus who knows what the world will bring. Hoping it’s better in all respects.
Actually, I have noticed that many, perhaps most, people overestimate the amount of taxes that they pay. Commonly, they assume that their marginal income tax rate applies to their entire income.
Interesting info., @ucbalumnus.
Are you sure it’s not 55-59 with the highest net worth? (Which I found a little odd, but those numbers seem to be the highest?)
If anyone else cares, this is “per household” (more or less - it’s a little more complicated than that) information, not per individual. I always wonder when I see these charts.
Whether my parents have money or not to leave me I have no idea and it’s not my business. It’s their money and their right to do what they want to do with it. I was fortunate in that my education and graduate school were paid for without debt, taught about giving back and how important charity and volunteering is, learned how to bargain shop, and save for not live above my means and I’ve also been smart at investing and saving when I did have extra money to do so it in years when my husband or I made extra money above our needed living expenses.
If I inherit anything that’s their choice not my right. It always amazes me how many people live like their parents owe it to them.
The one killer expense that just gets out of control although this year ours is going down a lot is insurance. We have our own group policy and it’s outrageous. I’m looking forward to my husband turning 65 in a few years for that and a few other bonus reasons, but seriously our costs of medical care in this country are insane unless you work somewhere that you can get on a large group plan.
It does look like the highest percentiles peak at 55-59. However, the general peak appears to be older. There appears to be a trend where the lower percentiles get higher at older ages, but that could be due to the poorer people dying younger.
I know better than to predict federal tax policy, but I do agree that it is likely the recent estate tax changes will likely be undone to some extent.
That would buck the historical trend that once the estate tax threshold is raised it never goes backwards (the exception being the reversal of the Bush 0 estate tax of 2012 was it?). But given the financial realities the country is facing, something’s gotta give.
I would be shocked if we went back to $1 million for federal estate tax. That was a decade ago, and now a million doesn’t cover the value of a basic home in some areas of the country. What that potentially does to the real estate market makes me shudder.
Do you really think that if your kids thought they were going to inherit a realistic but large amount of money ( by which I mean say around 5 million or so each) they would do anything differently? Have they given you reason to think so based on their nature/actions? I knew my kids well enough to know that knowledge of their inheritance would have zero effect on their actions.
I wonder how accurate net worth and income consumer surveys are, I personally would not participate in one if asked.
And I did say “upper middle”, top 10% is still a large number of people, and more importantly includes me.
As for not going back to a $1 mil exemption, I feel there is a huge socialist leaning amongst the younger generation - free medical care, free college, debt cancellation, universal basic income, etc- a gigantic pile of “unearned” money trading hands as we die may be too much to resist.
When they see US capitalism as moving away from spreading the gains of economic growth widely** and toward reserving it to the already wealthy***, with many of the younger generation struggling to find affordable college or entry-level jobs that are likely to lead to at least middle income careers, that should not be too surprising.
**Boomers, at least those who were not discriminated-against minorities, grew up in a US capitalist economy where economic growth spread the gains widely.
***Millennials are worse off financially (lower pay despite more education, less wealth, more debt) than their Boomer parents were at the same age.
Since estates / inheritances are means of entrenching SES differences across generations, it may not be surprising that those who want to return the US to being a land of opportunity find that one of the easier targets to tax.
My sister retired early based on her assumption that our parents died at 73 and 75. My sister also felt with her health history she might have less mobility as she aged. She is now 68 and has Parkinson’s. She is glad she did some traveling while she was more able.
Estate tax is something we keep an eye on. I’m politically liberal and vote Democrat but a republican administration is best for my pocketbook. I’m willing to pay taxes even when it would be nice to hold on to more.
