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23 Feb 2018

What do you think of the estate and gift taxes? Are they fair? Should they both be repealed? Should we get rid of the estate tax and keep the gift tax? Why or why not?

What purpose do you think one of the estate and gift tax deductions and exclusions serves? Consider the spousal exclusion, the annual exclusion, or the exclusion for paying the medical expenses of another. Also (briefly), how do the estate and gift taxes shift or conflict with income tax planning motives?

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Casey Durgan
Casey DurganLv2
25 Feb 2018

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Tax and Estate Planning

Richard and Monica estimated they would have adjusted grossincome of $108,000 in the current year and would have exemptions of$7,900 and deductions of $25,000. Their average combined federaland state tax bracket was 33 percent.

Richard and Monica maintained their contrasting views when itcame to estate planning. Even though their assets were well underthe threshold for exposure to federal estate tax, he wanted to setup a bypass trust. Monica wanted the personal assets, now mostly inRichard’s name, placed in their joint names. She wanted theirdaughter, who might be divorced fairly soon, to receive themajority of their estate. Richard said that fact did not persuadehim and that their son (who had an average career potential) shouldnot be penalized due to their daughter’s situation. Somehow it didnot surprise me that they didn’t have wills currently.

Case Application Questions:

1. Compute their projected taxes for the year.

2. Richard wanted to know if he should take a $10,000 taxdeduction this year or wait until next year to do so. He wasinclined to do so now even though his average tax bracket wouldlikely be 28 percent next year. What do you think he should do?

3. Monica wanted to know if they should place their savings intoa qualified pension or save it personally. She said that Richardoften had modest losses, not gains, each year. What is yourrecommendation?

4. Monica asked what tax-planning strategies you would recommendfor them. What will you suggest?

5. Do you believe they should establish bypass trusts?

6. What estate planning recommendations do you have?

7. Complete the tax planning and estate planning sections of theComprehensive Financial Plan using your answers to the abovequestions.

Argue either in favor or against the estate tax. Then, respond to at least two other students' posts in the following manner:

Support one student’s argument with additional information or examples.

Counter one student’s argument with information and/or examples.

Student 1 answer : Samantha

Samantha Caterina 5 posts

Re:Module 7 DQ 2

The estate tax is very tricky, it can be argued both ways, for and against. For arguments sake I would be in favor of the estate tax. Currently for 2017 the federal estate tax threshold is 5.49 million. This is only targeting the wealthiest of people. The estate tax will tax any amount of an estate above this. It makes up for a small portion of the total tax collected by the federal government but it is still a substantial amount. The estate tax can be different in each state therefore being taxed more if the threshold is smaller. It is argued that the successful decedent should not be penalized for being successful I would not agree this is true. They are no longer the owner of the estate and the money would just be passed to a beneficiary. The beneficiary then has the rights to do what they please with the money. This can cause the beneficiaries to become non-productive members of society. If the estate tax was taken out tax would have to be made up somewhere, therefore cause middle class taxpayers to pay more taxes. The estate tax does not target the average person only the wealthiest are affected by it. I do not think the estate tax needs to be taken out of order.

https://www.forbes.com/sites/kellyphillipserb/2014/10/06/guest-post-pros-and-cons-of-the-federal-estate-tax/#6e3c8eb975a6

Student answer Andrea:

Andrea Robinson-Parker 4 posts

Re:Module 7 DQ 2

The estate tax was once known as the death tax, there is a pun in there somewhere. Firstly, it is associated with the inheritance of a dead relative and secondly, it can be the death of small family businesses. I believe that this tax is essential for our country to survive. Bob Rywick, in his article, Pros and Cons of the Federal Estate Tax argues both sides of the coin. I agree with his pro stance and here is why:

Revenue from the estate tax will create around $200 billion revenue in the next several years. There has been a great increase in wealth in the recent past and this number may climb.

The estate tax will help to dilute the concentration of wealth. This concentration can be damaging to our free democratic society.

Many wealthy people donate large sums to charities each year to lower their tax bracket. If there was no estate tax, these donations would most likely drop off significantly.

Small business, (making less than $5,000,000) will not be affected. There are also rules set in place to protect farms regarding the valuation of farm land.

Less than 2/10 of 1% of the descendants dying each year will be affected by this tax, based on the current exemption amount.

Lastly, I personally believe that estate planning can alleviate some of these taxes. Estate taxes should not be confused with gift taxes. This is an option that can protect inheritances.

Student Answer

Lakisha Minniefield 3 posts

Re:Module 7 DQ 2

I am against “estate tax” and feel that when the property value goes up, it will increase my mortgage payment each year. I agree with Justin Haskins article regarding scrapping property taxes because as a property owner, charging fees for a specific service should be allowable. Also, property owners should be able to choose where the property taxes should be allocated especially when it comes down to our public education. I have two children who are autistic and in the past it was very difficult to find a school who had the staff to supply all of their educational special needs. Even though we live in the best neighbors that were very costly, the schools zone in the area had 2 out of 10 rating so I would have to transfer my children our of the district in order to get better services. Currently, my husband is getting ready for retirement out of the military and we have looked at all 50 states within the United States to see which state would give us the most exemptions when purchasing a home. The state we chose to move back to is Texas because of the no state property taxes. Property tax for the state of Texas brings in the most money of all taxes available to local government to pay for schools, roads, police and firemen, emergency response services, libraries, parks and other services provided by local government. The state also has a variety of partial or total (absolute) exemptions from appraised property values used to determine local property taxes. A partial exemption removes a percentage or a fixed dollar amount of a property's value from taxation. A total (absolute) exemption excludes the entire property from taxation. Since we will be on a fixed income, Texas property tax exemptions for disabled veterans was the best out of all 50 states. However, we will still have to look for a county with low property tax rate. Since I am already a disabled veteran, Texas has a property tax exempt chart for qualifying disabled veterans.

The exemption amount that a qualified disabled veteran receives depends on the veteran's disability rating from the branch of the armed service.

Disability Exemption

Disability Rating

Exemption Amount Up To

10% to 29%

$5,000 from the property's value

30% to 49%

$7,500 from the property's value

50% to 69%

$10,000 from the property's value

70% to 100%

$12,000 from the property's value

*The Texas Comptroller website lists all of the benefits for disabled veterans regarding property tax exemptions.

Even as a disabled veteran, I would still have to pay property tax but the exemption will only exempt the amount of the disability rating off the value of property. Disabled veterans who are 100% total and permanently disable will be exempt from paying all property taxes. Financially, my family will still have to find a home affordable in a safe neighborhood, public education is rated above 7 out of 10 and choose a county that property taxes are low.

Reference:

https://www.comptroller.texas.gov/taxes

Assume that you are a married individual and you have aliving-trust with all your assets (home, investments, cashaccounts). Your spouse is both a trustee and beneficiary of thattrust. You also live in joint tenancy with right of survivorshipState where your death means your spouse takes ownership of allassets that are shown as joint tenancy. For example, if a bankaccount has both your names, the bank account transfers over toyour spouse without tax consequences. If the bank account is not inboth your names, it goes into the Estate. The same applies for realestate and other investments. The general rule would be that yourmajor assets would be under the name of the Trust, and all otherassets would be listed as joint tenancy. However, there are fewareas to consider: What are the tax benefits of moving assets to aliving or irrevocable trust? Do both types of trusts file a taxreturn, or taxable income and expenses "passed through" to you?FINAL QUESTION FOR EVERYONE What is the solution to our tax revenueshortages?? We have a tax system that tries to modify taxpayerbehavior and is constantly changing, but is not collecting enoughrevenue to cover expenditures. Some think corporations are payingtoo much, but they get the benefits of the US economy andprotection of our laws - and if they don't pay, then the individualtaxpayer has to pay. However, as we now know, the individualtaxpayer already carries the majority of the tax burden, and if thewealthiest don't pay their fair share, the lowest earners have topay. The bottom line is someone has to pay - the question is how tomake that equitable. Thoughts?

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