I could be wrong but I think the goverenment can review all gift transactions 12 months prior to death (it prevents someone from giving everything away in their last days). So if your estat is at the threshold they could go back and say these weren't gifts, they were estate tax avoidance.
The estate tax is the only mechanism I can think of that directly taxes wealth, rather than income. Is it "fair" that the government gets a part of your money when you die, if you've got a large estate? I don't see why that's any less fair than the government taking part of your hard-earned income.
Annual Gift Exclusion = $11,000. If married and spouse is willing to split gifts for the year, the effective anuual gift exclusion is $22,000. For gifts of $11,000 or less, no gift tax return needs to be filed. No gift taxes are due. These gifts also do not apply against the lifetime exempt gift amount which is $1M. (if you split gifts, you will need to file a information-only gift tax return). The value of the gift from giftor is the FMV of the gift. The basis of the gift to the giftee is the basis of the giftor. For example, if I give my son $11,000 of IBM stock with a basis for me at $1,000, the gift is $11,000 (and no gift taxes are due) and my son's basis is $1,000. This implies that there is no step up (or down) in basis. If me estate made the same gift, the basis would be stepped up (and I would be dead ).
the goverenment can review all gift transactions 12 months prior to death Boomerang gifts are looked at. If you gift your soon-to-be-dead relative your investment portfolio knowing full well that you will get back the portfolio with a stepped up basis via the will, the IRS will nullify the gift and return your basis back to its original value. Gift taxes paid in the last three years will be brought back into the estate. If you paid gift taxes, then you have exceeded the $1M lifetime exemption.
At your death your cost basis in your investment get stepped up (or down if you happen to be TJ). That means that all of your LTCGs you were sitting on goes away and the IRS misses out on its cut. Why punish the IRS by not giving them their due?
That is true and in my example, I could give that $11,000 to a number of people the day before I die because I have $10,000,000. The day I die, the government takes part of that $10,000,000 so the number of people I can leave $11,000 chunks to, decreases. The ONLY thing that changed is that I died. Why should my ability to give out my money decrease? Why, before I die is the government NOT entitled to any of that money, yet the day I die they are? How is that fair?
We have a progressive income tax which means that the wealthy pay more in taxes than the rest of us. Since this system was put in place, the wealthiest among us have seen their tax rate drop by over two thirds where the rest of us have seen no net reduction in taxes at all. Why is that fair? Now, this administration wants to continue to lower taxes on the rich (which is all the estate tax affects) while keeping the most regressive taxe (payroll) in place at the same level. It is fair because that is how our income tax was designed. I am personally all for replacing it with a consumption tax, but as long as we have a progressive income tax, I don't think it is right to reduce taxes on the wealthy while keeping the rest of us at the same effective tax rate.
As a practical point, most rich old foggies have a tight grip on their $$$ and don't make that many gifts (beyond the annual $11,000 gifts to a limited number of people). Thus, gifting $11,000 to 1000 different people does not come into play in the real world. Why should the IRS care if the boundary cases don't make sense. Something else to consider is that to gift $11,000 you may need to gift securities or sell the securities and make a cash gift. In the former case the IRS gets it LTCG now and in the latter case the IRS gets its LTCG deferred.
I do and if you don't you are either one of them or blinded by them. So what? That still doesn't make it right for the government to cut taxes on the rich but not the rest of us. They already get write-offs for charitable contributions so those contributions are made at least partially to reduce their tax bill while making them look better in the community. Take away the write-off and most rich people would cut their "gifts" dramatically.
So, based on my example, are you saying it is fair that my estate has less money to bequeath (for the sole reason that I died) because the government should have taxed me more to begin with while I was alive?
I wish I was "one of them". My question is, what has the rich done to you? How has Bill Gates, Warren Buffet or Donald Trump "pi$%ed" on you?
Because that is the way our tax system was designed. If you want to change the system of taxation, I am with you, but if all you want to do is cut taxes on the rich (which repealing the estate tax will do), then I am against your position.
As an aside, people with $10M in their gross estate generally have bought a boatload of life insurance to pay for the estate taxes. The rich have their ways.
No, I am saying that it is fair because that is how our system was designed, to be progressive. You, and people like you, are fighting to make it more regressive and to shift the tax burden to the middle class. Why is is fair that people who are wealthy (the only people affected by the estate tax are wealthy) should have their taxes cut when the rest of us have seen no net reduction in taxes while the rich have had their tax burden cut by two thirds since the income tax was instituted?
While that is true in most cases, it is unfortunate that the insurance companies are benefiting and that the wealthy's money has to be used for purchasing that insurance rather than being able to be used for other things (or more money for those they bequeath to).
That's why I don't mind the estate tax. Those who lose out didn't do a thing to earn that money. They are getting money they didn't work for. If they are getting a huge chunk of $1,000,000 or more unearned money, then I don't have a problem with taxing that to help pay for social services in this country.
