MoKelly
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Retirement Planning - Lessons Learned
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JethroB
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I read an article once on how difficult it can be for the Gates’ to give out the huge sums they have planned. Plenty of worthy causes but finding those that can properly manage and make best use of the funds. I can understand that. The daughters of my last employer manage their deceased dad’s charitable foundation and they struggle to give out a few million each year. They get inundated with requests.
goeduck
Super Member
Reading up on this... something to be aware of for your retirement planning....
According to tax foundation, some of the policy changes being supported that will ultimately impact agriculture include reducing the estate tax exemption, doing away with step-up basis, increasing long-term capital gains tax and taxing an asset’s unrealized appreciation at transfer at death whether an heir decides to sell the asset or not.
The tax proposal calls for reducing the estate tax exemption amount all the way back to $3.5 million per person, immediately or retroactively to Jan. 1, 2021. Suggestions also include increasing the estate tax rate from 40 percent to 45 percent.
According to tax foundation, some of the policy changes being supported that will ultimately impact agriculture include reducing the estate tax exemption, doing away with step-up basis, increasing long-term capital gains tax and taxing an asset’s unrealized appreciation at transfer at death whether an heir decides to sell the asset or not.
The tax proposal calls for reducing the estate tax exemption amount all the way back to $3.5 million per person, immediately or retroactively to Jan. 1, 2021. Suggestions also include increasing the estate tax rate from 40 percent to 45 percent.
MoKelly
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Larry Caldwell
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Most likely nothing will be done and the estate tax exemption will return to $5 million in 2025, as the current law says. At current prices, that's about 1500 acres. That tax-free $5 million is not a bad deal.
If you are farming over 1500 acres and haven't incorporated, you really need to talk to an accountant and a tax attorney. There are a variety of ways you can distribute corporate shares to your heirs with minimal tax burden. If you don't own it when you die, no estate tax. If you keep 25% of the shares and your spouse keeps 25% of the shares, you can own as much as 6000 acres with no estate tax liability.
It's a business. Run it like one. The whole US tax code is written to benefit corporations. You can build your own landed aristocracy with a dynasty trust, if your heirs are not wastrels.
MossRoad
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Had to look up wastrels.
RickB
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Really?
MossRoad
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Yes, really. I could guess what it meant but I have never heard that word used in conversation. Ever. Never.
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5 million doesn't go far when farming Napa Valley grapes...
Kind of ironic... Dad's high school friend built a iconic winery over decades and passed a few months ago...
It gave him comfort to know he had everything planned... Only a few months later the property tax situation would be dire and the timing of his passing avoided it.
In his 90's he was still working the land...
I have no idea what 1500 acres of Napa Valley grapes would bring... but no shortage of homes on a few acres with grapes selling for millions.
Kind of ironic... Dad's high school friend built a iconic winery over decades and passed a few months ago...
It gave him comfort to know he had everything planned... Only a few months later the property tax situation would be dire and the timing of his passing avoided it.
In his 90's he was still working the land...
I have no idea what 1500 acres of Napa Valley grapes would bring... but no shortage of homes on a few acres with grapes selling for millions.
Larry Caldwell
Elite Member
It's a conundrum. Your dad's buddy didn't pay much in income taxes, because he could amortize any purchase and development costs against his taxes, and write off operating expenses right off the top. Essentially he was sitting on a tax free fortune. The 40% rate does seem excessive, but measured against millions of dollars of exemption, it's not that bad. Most really big estates are associated with successful businesses, and like farms, nobody ever paid income tax on a business investment. Heirs with their hand out think that should be a bottomless loophole and they should get the whole wad tax free.
The people who really get stroked are the nonproductive investors who try to cash out before they croak. I think the capital gains basis should be indexed to inflation. If you bought stocks in 1982 when the Dow was 800 and try to sell them today, you are paying capital gains on 265% inflation. The same is true of real estate. My home is worth about 10x as much as I paid for it, but a bunch of those gains are due to the falling dollar. Like the inheritance tax exemption, the homestead exemption will bail me out of some of that, but probably not all of it. It's less upsetting when I realize the CPI has been running 2% to 3%, while real estate has been inflating at 10% to 12%. That's not a bad investment, but I would still get stuck paying capital gains on a million bucks when, in current dollars, the gain has only been about $690k.
