ny raises threshold today for estate taxes (Florida: insurance, lawyers)

[mathjak107]

as of april 1 , ny now has a 4 million dollar exclusion before you get hit with estate taxes .

for those it apply's to : each year new york has been steadily increasing the amount from 1 million to 5 million eventually going up to the federal level of 5 million .

the problem with ny though is we have a ridiculous tax cliff they left in place .

if at any point you went over the limit by more then 10% you just did't pay tax on the difference you lost the entire exclusion and paid anywhere from 5 to 16% on the entire estate from dollar 1 .

that tax cliff still exists .

there were ways of avoiding it by using disclaimer trusts but you had to know what was going on in order to protect yourself and not many folks do .

this increase as of today likely does not apply to a lot of people but if it does , here is the info .

[Kefir King]

So the rich CAN take it with them.

[mathjak107]

nope , so the rich can give it to heirs . no one found a way to take it with them .

while 4 million is a lot 1 million is nothing in nyc . in fact a sanitation worker who gets a 40k pension with zero savings gets to live the same lifestyle as someone living off 1 million in nyc .

even 4 million can only safely generate 160k before taxes in retirement . many dual working couples exceed that income every year , and they hardly are rich.

being able to spend a million bucks lump sum is quite a different situation then trying to live off a million bucks

[NYer23]

When there is a will there is always a way of avoiding estate tax. Given how undermanned the IRS are I would be curious to know how many people are actually audited on their estate. Most families who have the resources to be audited to pay estate tax also have a line of professionals seeking to push the limits on tax avoidance. I remember the IRS use to cry for years begging and given wealthy people every chance to disclose their overseas money without any real consequences.

[mathjak107]

in order to transfer a deed on an inherited house we had to furnish documentation that either taxes were paid on the estate or no tax was due .
on the other hand states like new jersey have both an inheritance tax and an estate tax and one of the lowest thresholds for tripping it in the country .

don't die in new jersey !

what most of the country considers wealthy is really not when it comes to places like nyc

[NYer23]

Originally Posted by mathjak107

in order to transfer a deed on an inherited house we had to furnish documentation that either taxes were paid on the estate or no tax was due .
on the other hand states like new jersey have both an inheritance tax and an estate tax and one of the lowest thresholds for tripping it in the country .

don't die in new jersey !

what most of the country considers wealthy is really not when it comes to places like nyc

Yeah I assume most people will be trapped with paying estate/inheritance taxes are people with substantial illiquid assets that is not desirable to sell, for example if you own the Yankees you are probably not going to want to sell the team to avoid inheritance tax.

[mathjak107]

whether you sell it or not the estate value is still what it is .

the estate pays on it's value regardless . it does not matter how things pass either . if it is part of the estate it is counted .

[Wells5]

The actual exclusion is now $4,187,500, which will increase to $5,250,000 in 2017. That may prevent a lot of aging NY boomers from establishing a residence in Florida or Nevada. PA by contrast has an inheritance tax (different from an estate tax). If you die in PA without a wife or children, the Commonwealth of PA will take 15% of your estate off the top and there are no exemptions. So NYS is much better to retire to.

[Joe461]

Originally Posted by NYer23

When there is a will there is always a way of avoiding estate tax. Given how undermanned the IRS are I would be curious to know how many people are actually audited on their estate. Most families who have the resources to be audited to pay estate tax also have a line of professionals seeking to push the limits on tax avoidance. I remember the IRS use to cry for years begging and given wealthy people every chance to disclose their overseas money without any real consequences.

Yes and no. There are ways of minimizing estate taxes, but you can't avoid it with a will.(edit: just realized what you meant, still the point stands). At least, not if you would like your family to inherit. The gubbmint wants their cut. It's not enough that they taxed you on that same money your entire life, they now want to rob you when you die. Estate tax is truly one of the most disgusting concepts every created by government.

Aside from a simple will, there are many financial "tricks" that firms sell to avoid estate tax. While legal, they are very involved. They also are heavily depended on insurance policies to fund the scheme. Lot's of smoke and mirrors and often based on unsustainable financial projections. They usually sound better than they are. They make lot's for the lawyers and financial people, but don't do much for the individual's family.

You are right that the number of auditors are limited and the chances of getting caught are minimal. There are also many red flags that get raised on estates >$5MM (generally >$10MM because married couples are involved) which will bring IRS attention to the estate. Those pushing the envelope with things like FLIPs are very often looked at, if not fully audited. I think the IRS got smart on this... by raising the lifetime exclusion limit, they can focus on the "big fish" rather than worrying about the "little guy."

Originally Posted by mathjak107

nope , so the rich can give it to heirs . no one found a way to take it with them .

while 4 million is a lot 1 million is nothing in nyc . in fact a sanitation worker who gets a 40k pension with zero savings gets to live the same lifestyle as someone living off 1 million in nyc .

even 4 million can only safely generate 160k before taxes in retirement . many dual working couples exceed that income every year , and they hardly are rich.

being able to spend a million bucks lump sum is quite a different situation then trying to live off a million bucks

Couldn't agree more. (Actually, your scenario is a bit rosy for the millionaire. Tough to find a safe 4% income stream in this market, whereas the pension is as safe as it gets).

There is also another factor that people caught up in the class-warfare fail to realize. Many family-owned small businesses have been put under by estate taxes.

I worked with a company in the mid-west. The family built a sold business that was very capital intensive. They made a modest living, but the business had a high worth - machinery, building, etc. They were not cash rich.

When the dad/owner passed, the sons inherited the business. This was prior to the exclusions being raised to where they are today. The IRS came in and valued the business and wanted a check for a substantial amount of money. The family was forced to finance the company just to pay the estate tax. It almost put them under.

This whole notion of "all these billionaires" taking advantage of the system is BS. A lot of regular people are hurt by estate tax.

Regardless, that money is something the individual EARNED during his/her lifetime. It has already been taxed (probably multiple times). If they want to leave 45% to Uncle Sam, they can do it in their will. Horrible that the government can swoop in and steal from a family like that.


Years ago, they tried to re-write the federal code on this. Many will remember that the tax rate dropped each year until it hit zero (around 2010?). This was done assuming Congress would figure something out before then. Congress didn't. What I found ironic is that George Steinbrenner (owner of the Yankees) died in the "no estate tax" year. Being the smart business man he was, I wondered it he died on purpose just to avoid tens of millions of dollars in tax liability. Now that's tax planning!

[mathjak107]

you can minimize estate taxes not with wills but with irrevocable trusts .

drawing a safe 4% inflation adjusted income from that million has nothing to do with getting 4% on the investments .

the safe withdrawal rate as it is called includes spending principal to zero over 30 years .

it assumes at least 40% in equity's is used and is not based on a particular return . it is based on the sequence of the gains and loses and inflation each year .

even the same average return can see a 15 year span in how long the money will last depending on the way the gains and losses come in .

when accumulating money average returns expressed as cagr are pretty much the whole deal . but when spending down and inflation adjusting the income it isn't average returns that matter but the sequences of those gains and losses .

a 100 bucks that sees a 100% gain is 200 bucks , but if next year you fall 50% you are back to 100 with no gain. however expressed as an average return you have 100% less 50% divided by 2 years . that is a 25% average return .

if you were spending down you burned principal and did not get a 25% annual return .