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mrgybe



Joined: 01 Jul 2008
Posts: 2587

PostPosted: Sat Sep 18, 2010 4:59 pm    Post subject: Trusts Reply with quote

Several of you contributed to the discussion (Southwest forum) on the use of Trusts in estate planning. I suspect some of you left confused. The attached example may help to clarify........I took this from an estate attorney's web-site. There are a multitude of similar examples on the web.

Let's use an example based on the following assumptions:


* Husband dies first (actuarially, a good bet)

* The estate tax exclusion is $1,000,000

* Husband and wife's total estate value is $2,000,000.


The danger with a simple will is that commonly both wills simply leave everything to the other spouse upon death. Due to the unlimited marital deduction, there is no tax upon the first death and transfer of all assets to the surviving spouse.


The problem happens when the second spouse dies. Now that spouse has $2,000,000 in his or her estate and only a $1,000,000 exclusion. The estate is stuck with an estate tax bill of 45% of $1,000,000 or $450,000. This doesn't count any state estate tax that might also apply.


Through basic estate planning, specifically through use of a credit shelter trust, this couple could have saved over half a million dollars in taxes.

Upon the death of the first spouse, $1,000,000 could have been transferred (tax free) to a credit shelter trust (or family trust or AB Trust) and $1,000,000 (tax free) to the surviving spouse.


The credit shelter trust could be accessed for the support of the surviving spouse during his or her life. After the surviving spouses' death, the assets in the credit shelter trust could be transferred to other beneficiaries (i.e. children, etc) with no estate tax. The assets would transfer estate tax free because the first spouse used his or her $1,000,000 estate tax exclusion on the trust.


The other $1,000,000 would have transferred to the spouse, also tax free, due to the unlimited marital deduction. Upon the second spouse's death, the $1,000,000 he or she received would also pass to his or her heirs (i.e. children, etc), free of estate tax, due to use of his or her estate tax exclusion.


So, $2,000,000 in assets transferred free of estate tax. A tax savings to the estate of at least $500,000 (in the typical case).


I'm back....bottom line is that it's worth considering a living trust if the combined assets of you and your spouse are likely to exceed the Estate Tax Exemption. Congress has not yet established what that will be from this year on. A trust also avoids probate and the time, cost and loss of privacy that the probate process entails. For some people that is sufficient motivation to establish a trust even if their assets fall below the exclusion. Consult an Estate Planning attorney for advice.
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boggsman1



Joined: 24 Jun 2002
Posts: 3509
Location: at a computer

PostPosted: Sat Sep 18, 2010 6:06 pm    Post subject: Reply with quote

Mr G , Its not a very interesting subject ,
I doubt it will get a lot of hits from windsurfers.
Boggsy
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isobars



Joined: 12 Dec 1999
Posts: 13998

PostPosted: Sat Sep 18, 2010 7:12 pm    Post subject: Re: Trusts Reply with quote

mrgybe wrote:
Consult an Estate Planning attorney for advice.


And tell your Congressmen loudly and clearly "THAT'S MY GODDAMNED MONEY. I EARNED IT, I ALREADY PAID TAXES ON IT, AND YOU HAVE NO LEGAL OR MORAL RIGHT TO ONE CENT, LET ALONE 55%, OF WHAT'S LEFT. VOTE FOR THAT AND I WILL VOTE FOR YOUR OPPONENT EVEN IF HE IS A CONVICTED MASS MURDERER".
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boggsman1



Joined: 24 Jun 2002
Posts: 3509
Location: at a computer

PostPosted: Sat Sep 18, 2010 7:16 pm    Post subject: Reply with quote

ISO, there is an unlimited exemption this year, the Steinbrenners are looking good! So, if you kick the bucket in the next 75 days, your wife will be in good shape!
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LHDR



Joined: 22 Jun 2007
Posts: 94

PostPosted: Sat Sep 18, 2010 8:48 pm    Post subject: Re: Trusts Reply with quote

isobars wrote:
And tell your Congressmen loudly and clearly "THAT'S MY GODDAMNED MONEY. I EARNED IT, I ALREADY PAID TAXES ON IT, AND YOU HAVE NO LEGAL OR MORAL RIGHT TO ONE CENT, LET ALONE 55%, OF WHAT'S LEFT. VOTE FOR THAT AND I WILL VOTE FOR YOUR OPPONENT EVEN IF HE IS A CONVICTED MASS MURDERER".
I don't understand the angry excitement about this "death tax".

It seems appropriate to consider as taxable income the money that children inherit from their parents, and, in fact, the standard deduction of a million dollars seems to prevent hitting people with this tax who actually need money. This is different from a spouse inheriting, since spouses arguably earned their wealth together (therefore a spouse doesn't have to pay taxes a second time), while children probably did nothing to earn this.

Plus, this tax helps funding people who earn their living as government workers off taxpayer's money, like apparently the above poster, who, nevertheless (and in bizarre irony), frequently complains about taxes.

-lhdr
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swchandler



Joined: 08 Nov 1993
Posts: 5746

PostPosted: Sun Sep 19, 2010 12:28 pm    Post subject: Reply with quote

Thanks mrgybe for confirming my understanding of this matter. Although I wasn't clear on all the particulars in my earlier comments, I was on the right track. My mother is still alive and well, but her estate would most exceed the estate tax exclusion, given the value of her home and savings. It would make good sense to look into this more in the future, and develop a good plan.

What's with isobars? Seemingly he's quite bent, but that's not too surprising since his panties are always bunched up about something. Based on his own past comments on the forums, he doesn't have any children, so it's just him and his wife. Then again, maybe he's not really married to his spouse, and is currently living in sin.
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mrgybe



Joined: 01 Jul 2008
Posts: 2587

PostPosted: Sun Sep 19, 2010 12:47 pm    Post subject: Reply with quote

LHDR..........perhaps this will help you understand why some might be angry.

Tran and his wife entered the US legally from Vietnam. They started a small business from their tiny apartment. For fifty years Tran worked long hours, often seven days a week to build the business. For the 30 years before he died, his two sons worked tirelessly alongside him. They paid themselves modest salaries and poured everything that was left after income taxes back into the business. When Tran died the business was worth $6 million...........aside from his house, it was his only asset. His wife was already dead so his wanted his son's to have the business they had all worked so hard to build. The Estate tax exemption at the time was $1 million so the government told the sons that they owed $2.75 million in taxes simply because their father had died. They had no assets other than the business so they had to sell it to pay the taxes.

The great strength of this country since it's formation has been the ability to accumulate wealth through hard work, innovation and self sacrifice. Estate taxes undermine that incentive to succeed and to prudently save.
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isobars



Joined: 12 Dec 1999
Posts: 13998

PostPosted: Sun Sep 19, 2010 12:56 pm    Post subject: Reply with quote

[quote=”LHDR”]1. I don’t understand the angry excitement about this “death tax”.

2. … prevent hitting people with this tax who actually need money …

3. … children probably did nothing to earn this.

4. this tax helps funding people who earn their living as government workers off taxpayer's money

5. like apparently the above poster, who, nevertheless , frequently complains about taxes.

6. in bizarre irony[/quote]

1. You work your butt off and scrimp to build your savings honestly, and you pay all your income taxes on it. What’s left is yours … not the government’s, not your neighbor’s, not Bernie Madofff’s … yours, to spend, invest, give to charity or your kids or Bill Gates, eat, burn, donate to the government, etc. as you damn well please. IT NOW BELONGS TO YOU. So what moral or constitutional right does the government have to take ANOTHER 1% , let alone another 55% of YOUR after tax money, by force just because you died?

2. “Need”? “NEED”?
• Only one person has ANY moral or legal right to dictate how much money another person “needs”, and that person is the person who owns it after paying his taxes on it.
• Need, schmeed; it’s HIS damned money. It’s not yours, or mine, or the government’s; it’s HIS.
• Only Karl Marx and his followers think otherwise.

3. So what? It was Dad’s AFTER TAX money; who the hell gives the government any right to claim ANOTHER chunk of it, contrary to Dad’s intent, just because Dad died? (I see MrGybe covered the family business side, so I'll omit that part.)

4. So would a 100% income tax. Do you support that, too?

5. Where have I complained about taxes, per se? You cannot produce one such comment from me. My problem is with taking money beyond that authorized by the constitution by force of law and giving it to people who CHOSE NOT to take care of themselves.

6. “Ironic”? Don’t tell me you’re one of those people whose freedom and very life and way thereof depend on a strong U.S. military, yet claim our military retirees have not earned their pensions and partial health care subsidies, in several ways? Do you claim they should be denied SS benefits even though they paid cash for them just as you did? Do you deny that you had the same opportunity to serve your county that most U.S. residents, citizens or not, had? Were you merely too self-centered to make personal sacrifices to help sustain the free world, or just an out and out coward? Are you intentionally implying that our retired military people have an unearned free ride on others’ backs?
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mac



Joined: 07 Mar 1999
Posts: 5086

PostPosted: Sun Sep 19, 2010 4:35 pm    Post subject: Reply with quote

Let's see. I didn't actually earn the money that my parents gave me, but some want to see it as something other than what it is--income. Now we can bypass a million from taxes completely, plus donate $12,000 a year to your children, grandchildren and their spouses. You can shelter most of the income you make on your multi-million dollar estate because it comes as capital gains, which is taxed at a lower rate. Let me get this straight--sheltering about $2 million of inheritance nearly completely from taxes isn't enough for Isobars, he wants it all sheltered. Oh, that's what the Republicans did! They sheltered it all for the last period of years. That means the second and third generation get the money, in its entirety, no matter their work ethic. Isobars, the second coming of Gordon Gecko--greed is good!

Mike, you are entitled to your opinion, as greedy and selfish as it is. But you aren't entitled to present it as a moral creed. Many of us have issues with unbridled greed. Doesn't somehow seem very Christian, at least as I learned the term.
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mac



Joined: 07 Mar 1999
Posts: 5086

PostPosted: Sun Sep 19, 2010 4:41 pm    Post subject: Reply with quote

Of course mrgybe's comment is a straw man as well. There are ways to shelter family businesses, such as creating partnerships along the way. Tax reform in the past has in particular made it possible for farm owners to pass their holdings along to heirs that want to stay in the business. I think those reforms all make sense. In mrgybe's example, rhetorical as it is, the heirs get $3.25 million after taxes. I should weep for them? What percentage of the US wealth spectrum does that put them at? 95th or 98th?
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