What’s your definition of “wealthy”? Estate Tax filing exclusion is over $12Million, 2x for a married couple. (it was half that 5 years ago though). To me $12M qualifies for ultra wealthy.
I don’t doubt that IRS collects a lot in estate taxes… but from few people. For example, in 2020 less than 0.1% of deaths resulted in estate tax.
As I understand it, spouses are not subject to estate taxes. So we are only talking about the possibility of children being impacted by estate tax for huge windfall inheritances.
I wouldn’t qualify $12 million as being ultra wealthy.
I think it’s very wealthy but given stock markets return over 10% a year (7% in real returns), someone with $2 million invested now would hit $12 million within their life time.
I’d say $30-50m is ultra wealthy. It’s the point where college admissions no longer matters as much.
So what is the right amount that should be collected?
What is the difference between leaving $2 million to kids after death vs paying $2 million for 4 kids undergraduate and post graduate degrees.
If you pay for your kids medical school costs, should that be a taxable event?
If you buy them a car, should that be a taxable event?
If you let adult children live in your house, should that be taxable event?
Most won’t have that much when they die, and not due to spending frivolously.
Here’s the median income by age. The highest level is 60K at age 45. If they are able to sock away the entire 60K (surviving on another income perhaps) it will take them 33 years to reach 2 million (not counting interest/gain earned, but you were talking about a 2 million investment, so it matches that). Should note that 33 years would come after age 45, though presumably they could have put away less earlier shortening that IF they could live off another income 100%.
Most people can’t even fathom putting 5K monthly into retirement.
One of the major things I learned from having my 10th grade year spent at a wealthy private school (on scholarship) was how little those in that circle understand about how average people live. My dad was making 18K/year working for IBM at the time (yes, he told me). One of my peers remarked that they have a painting in their living room that cost more than that. My peers were terrific, and after that conversation I never paid for a thing when with them because they covered it, but they had no idea. The whole thing came up when I said I couldn’t afford to go out to lunch with them…
What is the median salary by age in the United States?
In full-year 2021 in the United States, these were the median salaries earned by age:
And now we all get to groan when someone posts that in NJ or CA $5.1 million makes you “middle class” because property taxes are so high and a million dollar house is barely a shed with running water. And then someone else posts that living in a high rent neighborhood is a choice. And then someone had a sister-in-law whose best friend went broke paying back college loans for a sociology degree even though her parents had left her $2 million tax free.
CMA- thank you for posting this. And to everyone else- can we all just stipulate that 5.1 million is a lot of money, even if it won’t make you “rich rich rich” in Saddle River or Atherton?
I would suggest a better word is inconsistent. (I’m sure that teh education lobby is quite happy with the situation of grandparents paying tuition directly.)
I lived in a tear down (raised my kids there, we have happy memories). It has- in fact- been torn down and replaced by a McMansion. It was a high cost area (we were relocating from a low cost area and it was what we could afford. We bought it-- and to the realtor’s surprise- did NOT tear it down, since it was what we could afford. We did add smoke detectors, carbon monoxide monitors and a few other safety features- we didn’t have a lot of extra money but we weren’t morons).
So I’m taking out the world’s tiniest violin when we hear about a 5.1 million estate being “nothing” if you live in a high cost area. I’ve lived in high cost areas and low cost areas, so I am really not going to cry if 5.1 million means you are poor at the Greenwich Country Club.
This is how the estate tax exempt limit got raised from $650,000 if I remember correctly. Coastal congressmen saw their house appreciating beyond $650,000 and thought they should be able to leave the house to their kids tax free. They stopped being a gatekeeper for middle-class.
A tear down is a truly unlivable home. Think pervasive mold, huge holes in the ceiling where water pours through when it rains, a foundation that is degraded to the point where the house might collapse, etc. You are describing an old house, not a teardown. Literally every house where I live is like that.
I definitely get where you are coming from with the wealthy whining. I am surrounded by 1M+ homes owned by people who spent most of their income in their working years on country club memberships and vacations. Try negotiating with one of them to buy their home. It’s like dealing with someone else’s nightmare in-laws.
I don’t think people should be rewarded for blowing their money on stupid things in their prime working years with generous homestead tax exclusions and 1031 exchanges while kids with fractional shares of Apple should pay higher long term capital gains rates. That’s just more generational warfare, and we don’t need more of that.
Squash and tennis were my life in high school. I used to play squash every day in the squash courts in high school. I can’t imagine the horror at not being able to play lol.
But to be clear, I wasn’t saying that having $12m isn’t wealthy. Of course, it is wealthy.
That’s likely because the exemption increased to $12M rather than any maneuvers only the wealthy can employ. They don’t have a magic bullet most of the time. If we lower the exemption limit, we’ll collect more taxes.
My friends who are small farmers tell me that they ONLY way they could continue to farm is to have inherited the land. Without inheritance, all the farm land would be owned and farmed by corporations.
I look forward to helping out my kids and grandkids. What the H### else was I working for?
