Question about the estate tax.

[Commie Pinko Dirtbag]

What happens when the estate is one huge-ass mansion and almost nothing more? Are they forced to sell it so they can pay the tax?

[TexasObserver]

1. Yes, if the mansion is valued highly enough.

Doesn't matter what the assets are (with some exceptions) that make up the estate. Real estate, stock, bonds, diamonds, collections, autos, whatever. If the estate surpasses the exemption level, there will be a tax on it.

Instead of selling it, however they might borrow against it and use some of that cash to pay the estate tax.

[Gaedel]

5. Businesses

Closely held family businesses often have to be sold to pay estate taxes when a family member dies.

Often some large corporation gobbles up the business at a discount since the family is being forced to sell.

[DURHAM D]

7. "Often" overstates the frequency. nt

[Gaedel]

11. It is anecdotal

but the place my brother worked went through that. The family sold to a big conglomerate who looted the place over a period of four years and sold the remnants off to a hedge fund. Now there are half a dozen vacant factories and a thousand guys out of union scale jobs.

[DURHAM D]

14. I sincerely doubt it was sold because they "had" to.

It was sold because they "wanted" to. Then they put out the lie that they "had" to. (This is what Republicans always do and the gullible believe them.)

Probably the heirs could not agree on a way forward.

[Coyote_Bandit]

9. Yes that happens

especially if the business has substantial non-liquid assets or highly appreciated assets.

I've seen it happen.

[Statistical]

13. If the business is that valuable they would be wise to incorporate. n/t

[Yupster]

16. What difference would that make?

If I have a business and it's a corporation and I own 100 % of the stock, it's still part of my estate. I guess I could sell shares of my company to pay the estate tax, but no family business is going to do that.

[Statistical]

20. Give some/all shares to family members prior to your death

Also selling shares (minority stake) of corporation is far easier and less chaotic to the business then sell off assets to pay for estate taxes.

The point is that corporation more easily handle change in ownership than a sole proprietorship or partnership.

[Yupster]

22. That's true

in fact it's the main purpose of a corporation.

Gifting over $ 13,000 a year will start using up your excemption at death though so it's kind of the same thing.

Small business owners don't like giving part of their company away either.

[Gaedel]

23. $13,000

The $13,000 a year exemption from the gift tax does not come out of your personal exemption (except for a recapture provision for the last three years before your death).


Even with a corporation, few people want to buy a minority share in a small, closely held, business. You generally have to sell a small corporation as a complete package.

[TexasObserver]

19. They sell because the engine that made the business run is gone.

The family members often either don't want to run the business or don't have what it takes. They sell because they'd sell whether they faced estate taxes or not.

Your position is largely a talking point used by the right to attack the estate tax. Sellers sell because they want to sell. Estate taxes are seldom a problem for those who do decent estate planning.

Estate tax revenues are a minuscule part of US treasury revenues.

[Hello_Kitty]

2. People with illiquid assets typically purchase life insurance for that.

The proceeds of life insurance are untaxed and heirs often use part of it to pay off the estate tax.

[RUMMYisFROSTED]

3. What's the point of an estate if you're broke?

Besides documenting your stupidity.

[Kali]

8. I'll give you an example.

My family homesteaded the ranch I live on 120 + years ago. Five generations have lived and worked here. Before the crash land was going for some insane amounts like 3 or 4 K/acre.

Making a living from agriculture in this day and age is rough, even with some tax breaks on the land base itself. There just isn't a lot of extra cash. Breaking up a place by selling a few acres here and there to pay an inheritance tax sets the heirs into a slippery slope of "easy" cash that almost inevitably destroys the integrity of the farm as a productive economic entity.

At least in my area, families that have managed to hang in there are often "land rich" and resource poor. The value of the land exceeds its value for agriculture production. Partly the problem is we don't receive economic rewards for the other social and ecological values we help provide. If there were a flexible and reliable way to derive income from providing habitat or open space things might be easier. Meanwhile the ability to pass on an intact farm or ranch to the next generation has another burden if land values are high and taxes have low thresholds. I suspect it is part of the argument from some "small" businesses that are family owned as well. The infrastructure or equipment may be out of proportion to the actual income it generates, but it may have been generating the support for a family for generations...

I don't know, I think personally we are "safe" from most of the discussed thresholds, but that is the argument from my perspective - isn't all about greed and avoiding paying a fair share. There can be more to the story than that simplistic view.

[frazzled]

4. Until this past year (2009) ... you could sell it with no capital gains tax

because the value of the property was set at the value on the day you inherited it.

In 2010 only, the same person would have had to pay capital gains on the difference between the original price paid for the house and its current sale price.

But I don't know what happens with the new estate tax law. If nothing had been done regarding the estate tax, it was slated to revert to the old law: in other words, property you inherit is valued at the worth on the day you get it. You could sell it immediately (a house or stocks and bonds) with no tax.

[northzax]

6. yes. but it would have to be quite a nice house

the personal exemption in 2011 is $5m. above $5m in value (and there are few houses worth $5 alone) you have a 35% rate. outstanding mortgages are deducted from the value, since they reduce the asset. in almost every jurisdiction, that asset would require tens of thousands of dollars in property tax alone, so it's unlikely to have no other assets attached.

of course, the classic example is what happens when Grandma's favorite painting turns out to be a Picasso?

[Statistical]

12. Not always. In joint ownership (in most states) transfers to the surviving party without estate.

An example:
you and spouse own a home in joint ownership, you die.

it isn't
your ownership - > estate -> taxes -> spouse ownership

it is merely
you & spouse ownership - >spouse ownership

[Denninmi]

15. The federal marital deduction is unlimited.

When the first spouse dies, the entire estate passes tax free to the surviving spouse.

It's when the second spouse dies that the estate MIGHT owe estate taxes.

There are numerous ways to get around paying a dime in estate tax. Frankly, it is a tax on poor estate planners.

[Kali]

24. good point

lot of dysfunctional families out there too :-(

[Yupster]

17. Yes - the problem comes when the second one

dies.

[Statistical]

10. In most states if the property is held jointly (i.e. between spouses) it doesn't enter the estate.

If two people own a piece of real property in joint ownership and then when one dies the surviving party merely becomes the sole owner. The house never becomes part of the estate.

So for example:
You and your spouse have a $500K home owned jointly with no mortgage, a $5 mil 401K/IRA (w/ spouse as beneficiary), a $1 mil life insurance policy (w/ spouse as beneficary), and no other significant assets.

You die.

The primary residence converts from joint ownership to sole ownership - never enters the estate - no taxes levied
The 401K/IRA transfers directly to your beneficiary (spouse) - never enters the estate - no taxes levied.
The life insurance policy is paid directly to the beneficiary (technically it is never even your property just a contract between your spouse and insurance co) - never enters the estate - no taxes levied.

Your spouse now has:
$500K home
$5 mil 401K/IRA
$1 mil cash

no taxes due.

:)

[MindandSoul]

18. Good question. . .but I bet if the "dear departed" has more than one child. . .the

if that big mansion is the only inheritance. . .they would have to sell it anyway to split it between them and to pay attorney costs!
So. . .I don't think this is a huge issue!

[Motown_Johnny]

21. they could refinance