Richard Tremaine: An open letter to the US Congress

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Richard Tremaine

“… in the world nothing can be said to be certain except death and taxes.”

— Ben Franklin

When I read the initial news reports that you were going to amend the estate tax as part of the Tax Cut Extensions Bill (H.R. 4853), I was thrilled. Finally, you had taken some action to provide us with some rules and some guidance that would carry into the future. I had mentally started a letter of thanks to you. Then, I learned that the estate tax amendments only were for two years. Then, I saw more details that there are other revisions that will affect how estate planning is done and how documents are prepared. Then, I realized that this was just more “business as usual.”

I am writing yet again to request that you give some serious attention to the estate tax, and provide us — since we are all affected — with some clear tax rules that will apply for the foreseeable future. Your collective intransigence on this issue is unconscionable, when the limited range for potential compromise is so clear. Your failure to act leaves us to plan a year at a time, rather than for the long term. Perhaps if you were able to enact a long-term estate tax plan, Congress also could enact other long-term legislation. You might even end up with some major programs that make some sense and are not simply driven by the most potent special interest group of the moment. But I digress.

When you amended the estate tax in 2001, you created a challenge because the rules changed every few years all the way to 2010, when the estate tax was briefly repealed. When consulting with clients, I had to describe the existing rules and the changes that would occur in the rules during the next several years. Although this was a pain, it still allowed us to collectively plan; for example, in 2002, we at least knew what the rules would be in 2008. Our clients could make a rational decision and plan for at least six or seven years.

In my experience, when people sit down to prepare a will and to plan for the distribution of their assets after they are deceased, they want to know, “How much of my estate will be needed to pay taxes to the federal government?” Depending on the answer to this question, they may have the additional question, “What can I do to minimize the amount that goes to the government and maximize the amount that goes to my family, friends and charities?” If there are clear rules, an attorney can respond to these questions and help clients develop a plan. Conversely, without rules, an attorney and his client are left to guess what you might do and when you might do it, and to try to make family bequests based on our “best guess.”

So maybe all we need to know is what The New York Times reported — that with the exemptions created by Congress for the next two years, very few people will have to pay estate taxes. All they have to do is to die in 2011 or 2012. Maybe we just shouldn’t worry that in two years, when another Congress fails to take action, the rules will revert to the rules of 2001, and suddenly, the estate tax will affect a large portion of the population.

By your past actions, you have proven that the only thing we can count on is continued uncertainty and the likelihood that you will not amend the estate tax again in the next two years. It’s just not important enough to you or to the lobbyists who have your ear.

Frustrating? Yes. Who is to blame — the Republicans or the Democrats? Yes. The fact is that neither those who wish to see a stringent estate tax that affects nearly everyone nor those who would repeal the “death tax” forever have sufficient votes to bring about their desired result. Therefore, the range of acceptable compromise looks to be somewhere between the 2009 rules ($3.5 million individual exemption; tax rate of 45 percent after exemption) and the 2011-12 rules ($5 million individual exemption; tax rate of 35 percent after exemption).

How about compromising halfway between the two sets of numbers and adding an inflation factor so that these numbers can adjust upward or downward in step with the overall economy? This could set a plan and rules for 10 or 20 years; then, we could plan. And you could, too.

Sincerely yours,

Richard Tremaine

Richard Tremaine is a lawyer with Klauzer & Tremaine LLC, of Steamboat Springs. He works in a variety of legal areas, including wills, trusts and estate planning.

Comments

seeuski 3 years, 11 months ago

That would take the power over OUR already taxed money out of the hands of the lawmakers/spenders and makes too much common sense. Good letter Richard.

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Fred Duckels 3 years, 11 months ago

Most of the estate planners that seem ready to "help", are just insurance salesmen selling policies to cover taxes. In the end they are like prying barnacles off the boat to get rid of. The situation changes so much that a solid decision one day may be become useless in ther near future.

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JLM 3 years, 11 months ago

There is truly no good argument for taxing estates in the first place.

The estate of a deceased person is the life time's accumulation of "after tax" investments or holdings which would otherwise go untaxed if he/she were to simply be alive to spend or gift or invest that value.

Why is the untimely death of a holder of wealth viewed as a "taxable event" in the first place?

By what logic should the distribution of a patriarch's wealth to his family be taxed? Particularly considering it has been taxed at least once already?

It is time to stop being sheep.

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sledneck 3 years, 11 months ago

Wasn't it Willie Sutton who was asked ..."Why did you rob all those banks"? His reply was " "cause thats where they keep the money!"

Government is force. It will print money; the most insisious way a government robs its people. Tax; robbing from a select minority and waging class warfare in the process. Or... Sell the nations resources; robbing from posterity as well as the current generation.

Either way it will take from the only places it can. And dead people put up little fight. Easy pickins. This has been my long standing argument for not owning real estate. When it finally has no choice, government will come to all property owners with its gun. And since you cant put the "back fourty" in your suitcase and sail away you WILL pay if you own (or think you own) real estate. Dump it now, befor the gestapo shows up.

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John Fielding 3 years, 11 months ago

.

Should you have the good fortune to live a full life, there will be opportunities to pass it on before you die. In a way the death tax encourages that action. I would rather see the increase from my life's work securely in the hands of my heirs long before I pass away.

.

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seeuski 3 years, 11 months ago

Untimely death John, what about that if you die before you pass it on? The thieves tax it from your heirs. On the other hand, how can I become one of your heirs? LOL!!

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sledneck 3 years, 11 months ago

Or what if your kids / heirs are not mature enough to "pass it along to" until you are aged? And how do you give them a ranch or multi-million dollar business while you are alive without incurring taxes? I think the limit is about $13,000/ year/ person. Thats 153 years to download a 2 million dollar estate to a single heir. You would certainly need "good fortune" to pull that off.

If your great great grandfather leaves his kid 2 million dollars and they leave it to your great grandfather and they to your grandfather and they to your dad then when you get the remains it will be $125,000! Thats if NOBODY in your entire family EVER SPENT A DIME of the money! There is but one word for that: Confiscation.

What business is it of Uncle Scam's whether you give now or later and to whom and how much? As JLM correctly stated it's AFTER TAX money either way!

The estate tax is another reason why money from this country sails over the horizon to foreign shores daily.

Oh, I forgot the fourth way government raises money: Borrowing money; not only stealing from posterity but it is clearly taxation WITHOUT REPRESENTATION since those who must repay the debt have no voice in the borrowing and mostly see little of the benifit from the borrowing.

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Scott Wedel 3 years, 11 months ago

One of the justifications for the estate tax is because if you are alive and give $1M to someone else then the recipient has to pay income (gift) tax, but if you are dead and your estate gives it then it is tax free. Thus, the estate tax discourages passing on your money while you are alive, but instead it is a better tax strategy to keep it and let your estate give it out.

And BTW, if the first $1M is exempt from estate taxes and the rate is 25% then if the estate is $1,000,001 then the amount owed is $.25. Ie. it would be 25% on that portion above $1M and the first $1M is tax free.

One of the more interesting ideas is to remove the estate tax, but make it subject to income tax on those receiving the money. So then it makes no difference if you give someone the money when you are alive or you estate gives it when you are dead. So then you might as well be giving it away before you die so that you can decide which heirs are doing a better job of utilizing it. And since it would bring forward inevitable events then it would be an economic stimulus.

It made no sense to create a tax loophole allowing estates to transfer assets without tax consequences when any other means of giving that sort of sums would have tax consequences. It certainly is not as if it makes sense as an economic stimulus to encourage dying.

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sledneck 3 years, 11 months ago

Why does transferring money to someone, especially a relative, entitle the government to a cut, Scott? Transferring money does not wear out the roads, burden schools, require infrastructure, use natural resources, encumber others' time or energy, etc.

Every dollar in print is governments' and the mere fact that it allows us to keep even one thin dime should merit gratitude from those being sheared like sheep. Isn't that right, Scott?

People like you forget an old addage... "You can shear a sheep once EVERY year, but you can only EAT "em once. And thats if he doesn't beat you and Uncle Scam to the exit.

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Jeff_Kibler 3 years, 11 months ago

Note to Scott:

"Who pays the gift tax? The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement."

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html

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Scott Wedel 3 years, 11 months ago

Jeff, Thanks for the correction, but the point remains the same - that it makes no sense to allow an estate tax to transfer significant assets tax free while having a gift tax that makes it a taxable event while the giver is alive.

And if you get rid of the gift tax then that would blow a major hole into the income tax because then every employee becomes a volunteer that receives weekly cash gifts and so on.

And the promise of America has historically been that a person can become a success based upon merit, brains and hard work, and not because we protect family fortunes. It makes more sense to tax people a bit less while they are alive and collect more from that person's estate. Though, when the federal government is running such massive deficits, it is hard to argue that anyone paying any taxes is fair.

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JLM 3 years, 11 months ago

It is always mean to bust up a good rant with facts but I cannot bear to read some of the comments above ---

Gift Tax considerations (annual exclusion) ---

Any person can give another person $13,000 annually with no gift tax implications

A married couple can give another person $26,000 annually with no gift tax implications as long as the gift comes from both of them

The individual and couple described above can give as many "gifts" of either $13,000 or $26,000, as appropriate, as they like in any calendar year to as many people as they want

A married couple can gift to their US citizen spouse an unlimited amount of money --- the "unlimited marital deduction"

A married couple can gift to their non-citizen up to $134,000 annually

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JLM 3 years, 11 months ago

Unified gift/estate tax credits ---

This is a bit more complex but as a general principal, one can "gift" up to $1,000,000 (lifetime gift exclusion) in a lifetime to any individual and transfer an estate of $3.5MM with no real tax liability but you don't get there the way you might otherwise think

It is all about "tax credits" not the size of the gifts or estate (though in the end the math works pretty damn close)

An example of the intricacy of the rules (and the chicken excrement of the Congress and taxman) is that all gifts given in the last three years of one's life are dragged back into the estate for estate tax purposes

Just when you thought it might be done, know that if your estate is $3,500,001 --- you don't pay taxes on only that last $1, you pay taxes on the entire $3,500,001 which means you are in a fairly high marginal rate because of that one last dollar --- only a taxman or a Democrat would cook up such a scheme

So --- again, estate taxes were meant to fund wars and were enacted and cancelled with regularity until the WWI estate tax was not cancelled. This is a ridiculous dinosaur.

The idea of taxing your "gifts" is just absurd.

But this is what we have allowed ourselves to be subjected to. Oy!

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