Tags: Trump Administration | donald trump | estate | tax | repeal | economy

Trump's Estate Tax Repeal, What It Means

Trump's Estate Tax Repeal, What It Means

(Dollar Photo Club)

By    |   Monday, 19 December 2016 10:43 AM

Is there any benefit to having an estate tax?

From the government’s perspective, the Congressional Joint Committee on Tax tells us that the estate tax is a net revenue loser. The amount of estate tax collected is minuscule but the losses in income tax (because of step-up in basis) are substantial.

The estate tax incentivizes people with large estates to set up tax-exempt foundations which takes billions of dollars off the income tax rolls. Worse than that, these foundations are used by the mega-rich use to create tax-exempt family-controlled financial dynasties.

Maybe the estate tax is good for the taxpayer?

In your dreams.

Chris Rock, the colorfully speaking comedian, once remarked that you don’t pay taxes—they take taxes. If, as they say, tax is just legalized robbery, then estate tax is legalized grave robbing.

Having the government taking half of your earnings while you are alive, and then taking the rest when you die is not good.

So, if the estate tax is bad for the government and bad for the people, then who is it good for?

There are three groups who are staunch defenders of the estate tax.

Politicians who use the estate tax issue to consistently raise campaign contribution.

The vast estate planning industry who use the estate tax as their primary sales driver.

The anti-capitalists and other political groups supported by some of the big mega-foundations to promote attack the rich schemes or otherwise promote socialism over the free-market.

What was the original purpose for the enactment of the estate tax regime in 1916?

Like the three previous estate taxes in U.S. history, it was supposed to be a temporary tax used to pay off the war bonds of WWI---which, in fact, were paid off before I was born.

Separate from its tax potential, estate planning should be about helping people keep their financial affairs private and to accumulate, preserve, protect, and efficiently transfer wealth at the right time to the right people.

Instead of human dynamics, privacy, and maintaining financial security being the primary focal points of estate planning, the imposition of the estate tax shifts that focus instead to disclosure of private affairs and facilitating the payment of tax.

It’s like a scene out of a macabre movie. Someone dies, the body gets buried, and then some faceless, nameless ghouls appear and take everything that was precious to the decedent while destroying any who oppose.

Looking at this another way, in my entire professional career nobody ever told me they just couldn’t live one day more without giving away all their assets to a family limited partnership and then selling the limited partnership interests using a self-canceling installment note to an intentionally defective trust and qualify for discounted asset valuations.

The only reason this convoluted legal structure exists (and people pay enormous fees to create this monstrosity) is so when someone dies their estate will pay less tax.

President-Elect Trump is not proposing anything that has not been promised by politicians—and opposed-- over the years. Promising to repeal the estate tax has been a standard campaign contribution ploy in every election cycle.

This time around, the likelihood of a repeal of the estate tax by Trump looks more like a legitimate effort than just another political scam.

Essentially, Trump wants to repeal the estate tax and put in its place a capital gain tax on inherited assets. The gain becomes payable when the assets are sold.

There will be a $10 million exemption from tax with special rules further exempting small businesses and family farms. It’s close to what Canada put in place when it repealed its inheritance tax.

My primary criticism is that a $10 million exemption from tax is too low----$500 million would be more reasonable. It’s good for America when people to have capital to invest without the government first taking a chunk off the top to squander on welfare programs.

If people want to set up a true decontrolled charitable or religious foundation, that should be fine. But, going forward, controlled mega-foundations should file returns and pay income tax like everyone else.

As a matter of public policy, the government should not be actively encouraging the formation of unaccountable tax-exempt financial dynasties.

If the estate planning industry were people first oriented instead of government first, then they should be eager to have the estate tax repealed.

That would clear up the perception by people that the estate planning industry is another political cog in the government’s tax collection machine instead of working for the benefit of the people paying the fees.

The question of whether the estate planning industry is oriented towards people or government first reminds me of something P.J. O’Rourke once said, “Politicians are interested in people the same way fleas are interested in a dog.”

Since estate planning professionals should put their client’s interests first, Trump’s proposed estate tax repeal works for me.

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher. 

 

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Kleinfeld
Since estate planning professionals should put their client’s interests first, Trump’s proposed estate tax repeal works for me.
donald trump, estate, tax, repeal, economy
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2016-43-19
Monday, 19 December 2016 10:43 AM
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