Why inheritance is the dirty secret of the middle classes

[tenant13]

I don't have any personal interest in the subject of inheritance - no family to leave my earthly possessions to. But I believe some of you may find this interesting. It's an article from a British newspaper so it deals with British sensibilities, history, tax laws and public policy. And this being Guardian, you can sense that their sympathies lie on the side of "social justice" executed via hefty inheritance tax. I don't quite share their views but I found the read interesting.

https://www.theguardian.com/money/2...-middle-classes-harder-to-talk-about-than-sex

 

[Fermion]

I am actually not against a reasonable inheritance tax in the theory that it would prevent huge power dynasties, but I don't think that is what happens in reality. In reality if you have enough money, you can sidestep such taxes, so what happens is the limits are lowered more and more when the taxes received don't meet the rosy forecast of the proponents (who have already spent said money on some program or another). Eventually the limits are so low they encompass those who don't have the means to sidestep the tax but were not in danger of creating a dynasty at all.

 

[OldShooter]

I see no moral argument for estate taxes, taxing again what has already been taxed. That said, I also see no moral argument for the basis step-up. (Though I like it a lot. )

These discussions also tend to gloss over the issue that many estates include assets like farms and family businesses that are not liquid enough to pay the taxes and whose value cannot even be readily established.

 

[marko]

I am actually not against a reasonable inheritance tax in the theory that it would prevent huge power dynasties, but I don't think that is what happens in reality. In reality if you have enough money, you can sidestep such taxes, so what happens is the limits are lowered more and more when the taxes received don't meet the rosy forecast of the proponents (who have already spent said money on some program or another). Eventually the limits are so low they encompass those who don't have the means to sidestep the tax but were not in danger of creating a dynasty at all.

Exactly.
Our state just voted in a 4% surtax on those making over a million dollars, including "one time millionaires" like people selling a business or farm or a home they may have bought 50 years ago.

The reality is that most people making that kind of money (my BIL comes to mind) have good accountants to bypass all of that. Worst case is they can move 15 miles north to New Hampshire or use their Florida home as primary. I've said here many times that the rich just have too many options to get stung.

Then the "million" dollars income drops to $500k, then to $250k, then....

 

[athena53]

The reality is that most people making that kind of money (my BIL comes to mind) have good accountants to bypass all of that. Worst case is they can move 15 miles north to New Hampshire or use their Florida home as primary. I've said here many times that the rich just have too many options to get stung.

This. I try to explain to perfect strangers on FB that when they clamor for more taxes from "the rich", they fail to realize that the ultra-wealthy have options you and I do not and won't just sit there and pay taxes that they believe are confiscatory. My own brother re-domiciled from NC to a place in FL with an indoor pool.

Then the "million" dollars income drops to $500k, then to $250k, then....

Heck, just don't index for inflation and it erodes fast enough.

 

[Gumby]

The only things I inherited from my parents were good looks and a bad attitude.

 

[Romer]

It was an interesting read.

My parents didn't have any money to help me. I paid for my own college, picked an Engineering degree, a good career and managed my money as best I could. I was OK with that as my Dad had never been ambitious and nothing wrong with that. I made my own house down payment with an FHA loan (5% down) when I was turning 25 from money I saved as an engineer over 2.5 years of work.

I wanted my kids to start off well, so I paid for their college, their first two cars and helped them with a down payment to buy their first homes. That set them on the right path and as a result they should be able to have a comfortable life. Homeownership early is one if the keys to financial wealth later on in my opinion. Some of their friends have a similar situation and other friends haven't been able to buy a home. They have always said how grateful they are to have had the help which gave them a head start on financial well being.

The one thing I did do is set a limit on College; in state costs. Anything above was on them. I explained an engineering degree from CSU or CU was just as good as one from MIT at least at Lockheed where I worked. I also went over one of their other choices costs in student loans and how long they would be paying and they both said that would be stupid to take on that debt. More conversations need to be had with High School kids about the long term impact of school choices and loans. My son in law went to community college for two years and then transferred to CSU and saved a lot of money and got the same engineering degree and a job at Lockheed afterwards as well.

I don't know of anyone who is guilty or ashamed about help they have been given. I would have loved to have had some help.

They likely will get a good inheritance, but that isn't a consideration in how I manage our money. We are enjoying our retirement and spending money, but not squandering it. We have a long road ahead of us being 61 and intend to live life to the fullest. We did put $5K in each grandkids College fund to give it a start and our kids are funding that so their kids don't have to pay for college.

When we do move on and they inherit, to me that is a good thing. WE worked hard to make and save that money and that shouldn't go away to the tax man, government or others.

The way I see it, anyone could have put themselves through school like I did, anyone could have gotten a good degree lined up for a good job. Those that get a degree with limited job prospects and don't make a lot of money isn't my responsibility to make them hole as they made their choices and I made mine.

Whatever is left is my money and my Kids/Grandkids are my legacy so that is where it should go.

 

[old medic]

The only things I inherited from my parents were good looks and a bad attitude.

And the drive to work for what I wanted...

 

[DrRoy]

I did inherit a descent amount from my parents, but it was only about 1/4 of my NW at the time, so most of what we have is my effort. We certainly do not discuss it with anyone. We have not even disclosed how much it is to our two sons. I sometimes wonder if we should (they are in their 30's, and their income is modest.)

 

[marko]

The only things I inherited from my parents were good looks and a bad attitude.

A good (young) friend of mine was kidding around with my 92 year old mother one time over drinks. Mom was into her third Cosmo, being charming, flirty and having a good time.

My friend said, jokingly "Oh my God, she's so much fun. Can I marry your mother?"

I said "Do anything you want, just don't screw me out of the inheritance"

 

[Sunset]

The story that I quickly read, certainly had a slant to it, putting inheritance in a negative tone.
They weakened their argument when they mentioned "A child of Nigerian immigrant parents" not having rich family money. Fact is most immigrant families have not had the time to build wealth enough to transfer on, and this woman's parents were probably still alive and worried about their retirement.

Also weakened by the story of Beth , who pondered wasting her inheritance by quitting work and going to live for 10 years in some country. Obviously, a short term plan as after the 10 years and the money is gone, then what ?

I didn't see mention of the division of wealth via inheritance. We just went though this, my FIL passed away, and I saw how his savings from a long lifetime of LBYM's was divided out to the children.

Another fellow I know, his trust for his estate will be dividing it amongst 12 distance relatives, this spreading out will mean everyone can buy a cheap car.

Inheritance encourages folks to save, if instead the rule was everything you own goes to the gov't upon death, nobody would buy a house, or even save up money or invest.

 

[COcheesehead]

My Dad left this world with about $25,000 to be split among five kids.

 

[Fermion]

My papa was a rolling stone. Wherever he laid his hat was his home. When he died, all he left us was alone.

 

[razztazz]

The story that I quickly read, certainly had a slant to it, putting inheritance in a negative tone.
They weakened their argument when they mentioned "A child of Nigerian immigrant parents" ...........
Also weakened by the story of Beth , who pondered wasting her inheritance by quitting work and going to live for 10 years in some country. Obviously, a short term plan as after the 10 years and the money is gone, then what ? ........

Another fellow I know, his trust for his estate will be dividing it amongst 12 distance relatives, this spreading out will mean everyone can buy a cheap car.

Inheritance encourages folks to save, if instead the rule was everything you own goes to the gov't upon death, nobody would buy a house, or even save up money or invest.

No matter which side of these things the author is on, I have found that The Truth never seems to be sufficiently self-serving to the cause. It's always about "telling the story". Almost like a movie that states "Based on a true story....." IOW what I am about to tell you ain't really true."

 

[PaunchyPirate]

I just re-did my will to simplify it a lot and to remove some people from any inheritance -- my brothers should have treated me better when I was a kid.

I'm unmarried and childless. So, I have left my estate to be relatively evenly split between my 10 nieces and nephews. The oldest (and most responsible) one gets more because she has agreed to be my executor.

What hurts, is that I live in Pennsylvania, and we have an aggressive inheritance tax. If I live here when I die, my executor will have to pay 15% of my estate value to this tax. If I were to die today, that would be a very substantial amount. But the amount each of them would still receive would be life changing to each of them. So such is life. I discussed this with my estate attorney and decided I wasn't going to add complications to the estate just to try and avoid this tax. It is what it is.

My plan is two-fold: 1) spend as much of my money as I can before I die and 2) probably relocate out of Pennsylvania eventually -- mostly in search of a warmer climate and better lifestyle, not to avoid a tax.

 

[aaronc879]

Exactly.
Our state just voted in a 4% surtax on those making over a million dollars, including "one time millionaires" like people selling a business or farm or a home they may have bought 50 years ago.

The reality is that most people making that kind of money (my BIL comes to mind) have good accountants to bypass all of that. Worst case is they can move 15 miles north to New Hampshire or use their Florida home as primary. I've said here many times that the rich just have too many options to get stung.

Then the "million" dollars income drops to $500k, then to $250k, then....

The solution is to close the loopholes. Doesn't matter how good your accountant is or how much money you have if there are no loopholes.

 

[Sunset]

The solution is to close the loopholes. Doesn't matter how good your accountant is or how much money you have if there are no loopholes.

There are always loopholes.
Laws are written very often by interest groups and the politicians don't even read the 800 page law they are passing.

 

[pb4uski]

I see no moral argument for estate taxes, taxing again what has already been taxed. That said, I also see no moral argument for the basis step-up. (Though I like it a lot. )

These discussions also tend to gloss over the issue that many estates include assets like farms and family businesses that are not liquid enough to pay the taxes and whose value cannot even be readily established.

+1. If I were king I would get rid of estate taxes and the step up... do if you inherit assets you inherit the decedent's basis as well.

 

[tulak]

+1. If I were king I would get rid of estate taxes and the step up... do if you inherit assets you inherit the decedent's basis as well.

If I were king, there’d be many tax changes I would make. As noted earlier, the tax code has many loopholes, aka advantages, to those that have an interest in preserving their wealth.

As for the article, overall I agree. I’m already thinking of this for my kids, even though they are doing fine. But why not help them out now, so they can do better than fine?

It doesn’t cost me much and they’ll eventually get it all anyways.

 

[marko]

Another fellow I know, his trust for his estate will be dividing it amongst 12 distance relatives, this spreading out will mean everyone can buy a cheap car.
.

We used to call that "Wealth-Rot", the diminishing of wealth as it transfers down and down to an ever expanding set of heirs over several generations.

Actually, it was called another kind of "Rot" but I'm not sure if the term for those of the gentry is appropriate anymore.

 

[marko]

The solution is to close the loopholes. Doesn't matter how good your accountant is or how much money you have if there are no loopholes.

For some odd reason, the loopholes always seem to get built in. It's as if things like this were actually designed to be gamed sometimes.

 

[OldShooter]

The solution is to close the loopholes. ...

Another solution is to live forever. Neither is attainable in practice.

One man's loophole is another man's tax incentive program.

 

[razztazz]

For some odd reason, the loopholes always seem to get built in. It's as if things like this were actually designed to be gamed sometimes.

It's not an "odd" reason. It's quite understandable and even universal.

I edited out what it's called.

 

[Lewis Clark]

... What hurts, is that I live in Pennsylvania, and we have an aggressive inheritance tax. If I live here when I die, my executor will have to pay 15% of my estate value to this tax. If I were to die today, that would be a very substantial amount. ...

One way to minimize the estate tax is to gift while you are alive. As long as your own finances are secure enough, of course.

 

[marko]

It's not an "odd" reason. It's quite understandable and even universal.

I edited out what it's called.

I was being facetious by calling it "odd'