The farm lobby probably wouldn’t have such a problem if capital gains were indexed for inflation. If basis is indexed to inflation, the capital gains would be much smaller.
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Right. I think we have a vocabulary issue. What you are calling the Estate Tax Exemption is often called the Lifetime Gift Tax Exemption, which I was just calling the Gift Tax Exemption. But I agree that the $15000 exclusion is small change and that all of the benefit comes from the Estate Tax Exemption (which is what I was saying with a different label.
I am aware of the snap back, though what happens will depend on who is in power in 2025. But that is one reason to have set up a carefully structured grantor trust (under the iffy assumption that existing trusts will be grandfathered).
Excuse me if this is a dumb question. The exemption doubles for couples. But people rarely die together. If a couple has 7 million and one dies, the spouse is safe from estate taxes, but then when the spouse dies, if she still has the 7 million in assets, the kids pay estate taxes on the 3.5, since she is now single.
I have read that there may be carve outs for the family home, family farms and possibly other small businesses.
With the back and forth of which party is in power, the situation could change multiple times before I pass on.
Not a dumb question as this stuff is pretty arcane.
From a site called thebalance.com, it says,
" Note that beginning in 2011, the federal estate tax exemption was made transferable between married couples. This is referred to as “portability of the estate tax exemption” and means that if one spouse dies in 2011 or later and his or her entire federal estate tax exemption is not needed to avoid estate taxes, then the unused portion of the deceased spouse’s estate tax exemption can be added to the surviving spouse’s estate tax exemption. This, in essence, means that in 2021 a married couple will be able to pass on up to $23.4 million on to their heirs free from federal estate taxes without the need to use AB Trust planning."
Before 2011, people used something called a Credit Shelter Trust or an A-B Trust. It required that the couple divide their assets and required a lot of planning but largely achieve the same goal. The A and B Trusts are usually established by the revocable will of the individuals and hence this might not be doable depending upon what happens to Biden’s suggested tax law changes.
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Exactly, which is why it’s a good idea to keep paying attention and developing plans B.
Man, are the advisors you guys pay gonna clean up. I should consider a career change.
I don’t like ‘blaming’ a political party and am shocked no moderator has chimed in @MaineLonghorn
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I also don’t like how off topic you seem to be getting @bennty
How does this ‘discussion’ point to the main theme of this thread?
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Please use the flag icon to report posts. We don’t moderate through posts or private messages.
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I didn’t know about that. Yes I will use that.
This is called marital deduction portability:
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Yeah, I’ve seen a lot of that. I’ve also, unfortunately, seen a lot of people operating on misinformation, badly outdated information, and half-information about these things. What is true is that the people writing tax law, including reps from rural areas, are seldom in close enough touch with what family farming is now that there’s any real understanding of what changes in this area will mean to the families.
And then there’s the fact that frankly there just aren’t that many family farms anymore that have that kind of value. The families still trying to make a go of it are in niche areas now – weed, organics, hydroponic, high-end restaurant supply, etc. It’s not a lot of land in part because they can’t pay the labor for that – the larger farms have generally already been bought. And at this point the likelihood is that the kids are already gone, anyway. The rural population is down to something like 16% of the country, skewed old. States you’d think of as rural have half their population or more in cities of hundreds of thousands of people, and the cities are far more diverse than you remember if you haven’t been through in a while. Lot of immigrants, religion, languages. Like the rest of the country.
Quite a lot of progress has been made on those robot laborers, lately.
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I’m really hoping there isn’t too much policing of the posts on this thread. Larger economic issues (and related political issues) are important to thinking through strategies for retirement and the next few years.
I’m very interested in all the different viewpoints expressed here!
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I agree. I think of the broader political/policy issues as helping with macro planning with a more long-range focus whereas the more detailed info helps with micro planning on a day-in, day-out focus.
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In Illinois, the average value of farm acreage is between $7,000 and $8,000 per acre. So a family farm of 500 acres (not unusual) is over the $3,500,000 exemption for a single person just for the land. Then there’s the equipment, livestock, etc. etc.
Owning a small building and business in a suburb of a major city can easily be valued at over $7,000,000. So running a pharmacy or a small manufacturing business could not be passed on to the children.
And while the basis would not be zero, I realize, it’s going to be painful to a lot of people. The country needs to encourage family farms and small businesses, not make it more difficult to keep them in the family.
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Can you put an actual number on the number of privately/family-owned farms and small businesses in the US that would exceed the threshold?
Fine to talk about how some general things can influence ‘how much do you think you need to retire…and at what age…’ but comments like “Again Republicans” violates the forum policies.
One can say “a conservative investment choice” or talk about risk, but going into what political party is causing this or that is not what should be discussed. One can talk about the facts. IMHO it takes away from the information when there is an underlying agenda.
I also do like to hear viewpoints from others’ personal experiences and observations as it expands what I can see and hear myself.
We all should be following the rules.
@bennty your logic is a stretch. However most on this thread will not be in the ‘social welfare’ like low-tier cost of Medicare – however some of their extended family members may well be. Always good to know what is going on in local/state/national picture – as a taxpayer, as a citizen.
But again you are bringing politics in and IMHO you should not mention either political party or what they may or may not do in the future. One can generally say it can go this way or that w/o ‘labeling’ it with a political party.
Again, the thread theme “how much do you think you need to retire…and at what age”.
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@SOSConcern, I think the underlying issue raised by @bennty is an assertion that demographics is likely to cause a big shift in tax policy, which will affect retirement planning because the changes may create additional taxes on some kinds of income and in particular income that has been sheltered from estate tax. I don’t agree with some of her statements – for example, I think that Roth IRAs are vulnerable in a few ways precisely because they are held diffusely by people with little political clout – but I do believe that political attitudes do shift and when they hit an extreme, as they seem to have in the US, they are likely to swing back over time, in part because of the demographic shift that is taking place. I don’t know too many far right kids in my children’s generation but I do see a lot of social justice warriors who think capitalism is evil (while living on $$ that their capitalist parents earned or inherited).
So, I think the general topic seems related to our thread, although most of it has to do with money that will be passed on to the next generations rather than money needed for retirement. And, while there are bad things to say about both political parties and while @bennty’s political leanings seem pretty clear, I do not think her (I think?) statement about the Republican party was anything other than a factual description of ways that have been proposed by Republicans and implemented to measure assets. It will be a lot harder to do that for the top 1% and for the top 0.1%.
@TatinG, the important question regarding step-up in basis is how many farms / small business would be affected versus how many wealthy families would just get a “free ride” (depending upon how you define it). My guess is that the issue raised by lobbyists affects a small-ish number of people (who could probably be aided in other ways if people were being creative) but that the impact costs the Treasury huge amounts from people just passing on Apple and Microsoft stock to their kids without paying taxes. In general, I think the right solution is to have eliminate capital gains tax rate, index the basis by inflation, and then any step-up in basis would be much smaller and less debilitating for family farmers. Maintaining the status quo is a license for the ultra-wealthy to hold on to their assets for generations and borrow against them to cover living expenses if that is an issue. Taxes don’t get paid and investors have an artificial incentive to hold on to assets, which reduces the efficiency of the capital markets. And, other lobbyists will be all over telling us that surely we don’t want to hurt the efficiency of the capital markets.
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