Say Anything Blog

OK, it is hypocrisy, but I am going to defend the Brits on this a little.  The UK has charged nearly 100% tax on royalty earnings since the 1960s.  Hence George Harrison’s composition “Taxman”.  It was a protest song about the confiscatory taxes the Beatles were being charged at the time.  That is why the Beatles set up Apple Corp., to protect some of the their earnings so that they could actually live.  Almost every successful British and Irish artist or group has had to find some way to stop paying the Queen’s ransom.

On the other hand, you would think that after having to deal with ridiculous taxes, Bono would stop demanding that the U.S. tax more to give more wealth to the world.  But he just bleats, ”Four legs good, two legs better!”

kbiel, nice response, honest and direct.  A few years ago, A. Huffington was exposed as having paid only about $600 for TWO years income taxes!

Communism is evil

Did you know that the bill killing the death tax puts a worse one in its place? Our farm estate planner has informed us that among other things, we will be taxed on capitol gains upon the death of our parents. It has been a while since this conversation so I don’t remember the details - just the gist of it.

Anyone familiar with the issue who could address this?

Did you know that the bill killing the death tax puts a worse one in its place?

No, but it’s got a huge flaw.

we will be taxed on capitol gains upon the death of our parents.

I would hire a different estate planner.  That one doesn’t seem to know what he’s talking about.  How can you be charged capital gains tax on something you haven’t sold?  You will be charged capital gains when you sell the property, not when you receive it.  The crappy part (besides capital gains in general) is that you will have to figure out the capital gains from the price that your parents paid for the property instead of the more reasonable calculation based on the estimated price at the time the property came into your possession.

BTW, if your estate planner spells it “capitol”, that is another sign that he’s an idiot.

kbiel, I believe what you are talking about is the concept SHE talked about. Like I said, I was remembering the gist, not the details.

In our case, it applied to my SIL who would be selling her share of the farmland to us upon the death of her parents. It makes a very complex and often emotional situation even more difficult and costly. This would make passing any small business, not just farms, to the next working generation, nearly impossible to do without destroying it. 

As it is, many a farm has been lost because the farming child had to buy out non-farming siblings, often at high appraisal values. With this method in place, the non-farmers will not sell, forcing the farmer into unwanted partnerships with siblings that would probably destroy the farm anyway. Or, the farmer would have to absorb half of the cost of the capital gains, thereby making the deal too expensive.

By the way, “capitol” was MY misspell, not hers. A senior moment, no doubt, as I am normally a pretty good speller!

As it is, we may not have to worry about it. My SIL has worked for an attorney for over 30 years. A year and a half ago, she duped MIL and FIL into signing a warranty deed with life estate trust, giving her and my DH each half the farm land. She also got them to sign a will giving her half of everything else.

She was not supposed to get HALF of the farm. She has never worked on the farm a day in her life - even when she lived here.  DH has worked and we have built a business here for the last 30+ years. We earned everything we have, got no handouts from the in-laws. In truth, we actually supported them through our investments.

SIL took none of this into consideration. She has always been greedy and selfish. She says her parents never gave her anything. (Huge lie!) She regards every purchase they made for the farm in the course of being farmers themselves, as a gift to us; even though most of those purchases were made with money we enabled them to earn.

Now she says she will sell the property to us after it is appraised. I will spare you my true thoughts of my SIL at this point in time!

Here’s where the capital gains clause in the new law gets us: if this document stands, we will not be able or willing to buy her half at her price. We will likely end up selling our half too, subject to overwhelming taxes on the sale. We can spend our retirement buying out the b---- and spend the rest of our lives paying her, or well our half, spending the rest of our lives paying the IRS. We could also try to keep the farm, but lose half of it to whoever has enough money to satisfy her greed.

We only found out about these papers a few weeks ago and are still reeling from the betrayal. We have consulted our attorney and brought Mom and Dad to one of their own. We are all at the mercy of this %&$##@&!!

When I tried to get my in-laws to do the planning for a smooth transition 20 years ago, I was the DIL trying to steal the farm. Dad promised DH we would be “taken care of in the end”. Trusting soul DH is, he let it go at that. Fool that FIL is, he was so worried about keeping control and then unknowingly gave it away.

They never did the necessary planning and now we are all cooked. The family is split and Mom and Dad are miserable and finally, too late, realizing what kind of daughter they raised. 

If nothing else good comes of this, I hope that everyone who reads this will make sure your family is prepared for passing your business or other assets in a fair and equitable manner when you are gone. Don’t let your family go through this hell.

kbiel, I believe what you are talking about is the concept SHE talked about.

You gave nothing in context to indicate the estate planner’s gender and “he” is the correct pronoun to use when the gender is unknown.

As for the rest of your story, I am very sorry that you are in your situation, but you don’t have to be a farming family for this to happen to you.

I never defended the new law, I merely pointed out that you did not owe capital gains taxes at the time of inheritance.  In fact, while the new law is bad, it is still better than the previous law.  With the inheritance tax, you would have to pay the following April regardless of your ability to pay or whether you were able to sell the property to cover the taxes.  At least with the current law your taxes are not due until you sell the property and then you can pay the taxes out of the proceeds and not out of your pocket.

Your bad situation is primarily caused by a family member, not the tax laws.  As much as I would prefer that we repeal capital gains taxes (and really any tax outside of a flat rate personal income tax), the current law is better than it was before.

BTW, by my reading, the inheritance tax will not be fully repealed until 2010 and only then will the new capital gains tax be in place.  I pray for two things for you and your family: One, your in-laws live well past 2010 and two, that they are willing to correct the situation before their passing.

Speaking of the estate tax, Tuesday Morning Quarterback Gregg Easterbrook, as featured on ESPN.com’s Page 2, had a pretty hilarious piece on this, published on the 6th here.

Why the Estate Tax Helps You Live Longer: I just heard a radio commercial for the Accuquote life insurance service which declared, “We guarantee your money back even if you don’t die.” If I don’t die? Sign me up, and you can keep my money! On this subject, Congress continues to debate whether the estate tax will go out of existence in 2010 as currently scheduled, then come back into existence in 2011. Today the first $2 million of an estate is exempt from taxation, meaning only about one estate in 100 is taxed. In 2009 the exemption rises to $3.5 million and fewer estates will be taxed. In 2010 there will be no estate tax. Then in 2011 the tax would return with a lower threshold than today, imposed on any estate above $1 million. This goofy schedule is the result of legislative sausage-making during a tax-cut bill a few years ago. What this boils down to: from now till 2009, death is lightly taxed; then in 2010, not taxed; then in 2011, heavily taxed. Economic theory holds that society gets less of whatever it taxes. That’s why taxes on income and capital should be as low as possible (so we don’t discourage labor or investment) while taxes on pollution and energy use should be as high as possible (we want less of these things). Therefore taxing death is good – we’ll get less of it! With estate taxes declining from now till 2009, there is increasing incentive to die in these years. With no estate tax in 2010, that’s a really great year to die. With a high estate tax in 2011, death should be discouraged that year.