Cynical Nation

But Barry: The inheritance tax will never, ever, ever affect ordinary folks like you and me and Emily. It is intended ONLY to make the rich pay their fair share -- just like the income tax law of 1913 (enabled by a constitutional amendment, and the AMT (which was introduced to catch 12 millionaires who were avoiding income taxes).

There is no chance that people like Emily will ever suffer as a result of this carefully crafted and tightly focused tax levy.

I mean, heck, the inheritance tax is just like the FICA tax (which started off as an "insurance contribution" of 1% of the first $1400 of income) which has done nothing but help poor folks since it has always been paid almost entirely by rich people -- who probably inherited their money anyway.

The only way that there is a tax liability is if the entire estate is valued at over $2,000,000 (Sourced right from the IRS) or if the inheritance is in the form of IRA money, in which case the tax is taken out of the proceeds of the IRA.

In the case of an inherited IRA, you can transfer the funds into an Inherited IRA Beneficiary Distribution account, and you need to begin taking distributions by December 31 of the year following the IRA owner's death. This way you pay taxes a little at a time (and they can be withheld from the distribution) so you don't pay a big hit at once. I know this because I had an inherited IRA situation in my family.

Unless the entire value of the estate is in the form of the unsaleable house, so it is an asset that is unable to be made liquid, I don't see how there is this kind of tax liability.

I think you would need to know more about the nature of this inheritance; I don't think you have the whole story. Emily needs a good investment adviser, not a neighbor with a political axe to grind.

If in fact the entirety of the estate is in the form of this house, which is not saleable, than a reform of estate taxes to address this sort of situation could be made, rather than throwing out the baby with the bathwater.

I'm not trying to be hard on Emily; it sounds like the aunt who left her the house and whatever else is in this inheritance didn't do any homework on what the implications of the nature of her estate were. And there are certainly going to be people who get caught up in this situation.

But I'm not sure that making law to allow eighteen of the richest families in the country to not have to pay estate tax is the way to address this kind of Kafkaesque situation.

> But I'm not sure that making law to allow eighteen of the richest families in the country to not have to pay estate tax is the way to address this kind of Kafkaesque situation.

Yes it is.

"The only way that there is a tax liability is if the entire estate is valued at over $2,000,000 (Sourced right from the IRS) or if the inheritance is in the form of IRA money, in which case the tax is taken out of the proceeds of the IRA."

Actually, Jill, that's not what your link says. Here, let me help you:

"Most relatively simple estates (cash, publicly-traded securities, small amounts of other easily-valued assets, and no special deductions or elections, or jointly-held property) with a total value under $1,000,000 do not require the filing of an estate tax return. The amount was $1,500,000 in 2004 and 2005. For 2006 through 2008, the amount is raised to $2,000,000."

If the house was inherited prior to this year then the limit is $1,500,000. If it was inherited prior to 2004, it was $1,000,000. A million dollars is not exactly stately Wayne Manor in the metro area.

"Unless the entire value of the estate is in the form of the unsaleable house, so it is an asset that is unable to be made liquid, I don't see how there is this kind of tax liability."

Ouuuu...wrong again! The benchmark is "fair market value" not liquidity. Again, from your own citation:

"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate."

"But I'm not sure that making law to allow eighteen of the richest families in the country to not have to pay estate tax is the way to address this kind of Kafkaesque situation."

But Jill: Your citation says that "the estate tax only affects the wealthiest 2% of all Americans." Wouldn't that be, like 6,000,000 Americans? That seems like more than 18 families to me.

Emily's story doesn't make sense unless the cost of the property repairs exceed the fair market value of the house. Otherwise, she could just take out a home equity loan to cover the cost of the repairs and the tax liability.

And if the holdup is the transfer of title from the estate to Emily, then would not the estate be responsible to pay for the repairs?

I agree with Jill, there has to be more to this story.

> ...she could just take out a home equity loan to cover the cost of the repairs and the tax liability.

AFAIK, she could. I didn't mean to imply that she is completely without options, just that the whole thing is a royal pain in the ass -- and that the inheritance tax screws over middle-class people a lot more frequently than it does Paris Hilton -- whose parents, let's face it, are rich and resourceful enough to get around the damn thing.

"Emily's story doesn't make sense unless the cost of the property repairs exceed the fair market value of the house. Otherwise, she could just take out a home equity loan to cover the cost of the repairs and the tax liability."

That assumes that Emily has sufficient income to cover the payments on the note. If she doesn't, whe won't get the loan.

That assumes that Emily has sufficient income to cover the payments on the note. If she doesn't, whe won't get the loan.

How long could it take to fix a septic system? Worst-case, it would take 2 months to fix and get inspected. That's only a few hundred dollars in interest payments.

poor emily

Barry, you didn't state when this house was inherited. "Not too long ago" in my book means 2005-2006. So when was the house inherited?

The only reason that the inheritance tax "screws over" middle class people more often than it does the rich is because there are (for now) more middle class people than there are rich OR poor (though I suspect that by 2020, there won't be a middle class at all).

Is the house the sole extent of the estate? Or are there other funds as well? And if so, what is the nature of the other funds? As I said before, if they are an inherited IRA, then taxes would have to be paid on the mandatory distributions, but can be done in such a way that Emily never sees them. Yes, doing one's taxes in a distribution year is a bit of a pain in the ass, but it's just another 1099 form from the custodian of the IRA -- no big deal. If you want to get into the overall argument of the complexities of doing one's taxes, that's a completely different argument.

The "eighteen families" refers to those lobbying heavily for the elimination of the estate tax entirely.

As I said before, there are ways to deal with this through estate tax reform that protects middle-class families without creating a hereditary plutocracy.

Now if you believe in a hereditary plutocracy, say so.

> Now if you believe in a hereditary plutocracy, say so.

I believe in being able to pass on the already-taxed fruits of your labor as you see fit when you die. Call it what you will.

The only reason that the inheritance tax "screws over" middle class people more often than it does the rich is because there are (for now) more middle class people than there are rich OR poor...

That may well be, but you're ceding my point. You are, in essence, saying that it's more important to screw a few rich people than to keep many middle class from getting screwed. I'm glad your view is in the distinct minority.

And let's be honest; the inheritance tax is all about screwing. As I've pointed out, it's one of the most punitive taxes out there. It's all about confiscation of wealth, and has very little to do with revenue.

What difference does it make if Emily has those options. What possible difference does any of that make. Why should the feds take a huge chunk of already taxed money for no other reason that the earner is dead.
"Now if you believe in a hereditary plutocracy, say so." I belive that it's your money and you get to do whatever you want with it. The arguement that it "only" effects a relative few people is meaningless. It's a unjust tax. The number of people it effects in immaterial.

What difference does it make if Emily has those options.

None. It was a side issue.

And I agree with Barry that the inheritance tax is excessive.

"that the inheritance tax screws over middle-class people a lot more frequently than it does Paris Hilton -- whose parents, let's face it, are rich and resourceful enough to get around the damn thing." (Barry)

You don't even have to be all that "rich" or resourceful, Barry. Trust Accounts shield most such transfers from the estate tax and THAT'S the real reason more middle class people get screwed...Trusts and Endowments don't make much sense for their relatively paltry dispersals, but for those who have significant wealth to transfer, they certainly do and are worth all the money in financial advisors, lawyers and accountants to set up.

That's why you never hear of any really wealthy families (like the Hilton's) losing 46% of their estate to a tax bite.