Obama's position on the estate tax

[TinCow]

Tincow -a moderately sized family farm could easily be worth several million dollars. I definitely would not consider kids who grew up farming highly privileged.

The estate tax does break up family businesses and hurt the economy thusly. If you want to target rich families only you'll need to jack up the exemption level past $5million. And if the kids helped build that family business, they definitely worked for that money.

CR

Why are these hypothetical people running their multi-million dollar farm entirely as personal property rather than as a business or partnership? There are many ways to structure a family-owned business so that the majority of its assets are not subject to the estate tax. The estate tax is designed to hit personal property, not businesses.

[Strike For The South]

I stopped reading after "family farm"

[Crazed Rabbit]

Why are these hypothetical people running their multi-million dollar farm entirely as personal property rather than as a business or partnership? There are many ways to structure a family-owned business so that the majority of its assets are not subject to the estate tax. The estate tax is designed to hit personal property, not businesses.

Are ownership stakes in such business not hit with the estate tax then?

I stopped reading after "family farm"

Thanks for sharing.

CR

[Beskar]

I believe most farms are considered as limited companies or kin now, at least in the UK, which doesn't suffer from the same penalties and actually provides a lot of advantages such as able to get cheaper insurance, etc. Not sure of how it is in the USA, but TinCow probably knows a few recommended legal routes where families don't miss out where farms with large value assets are involved.

[TinCow]

Are ownership stakes in such business not hit with the estate tax then?

As a preface, I am not an estate attorney, so I'm not knowledgeable about all the intricacies of the system, particularly about any specific farm exemptions and whatnot. However, there are plenty of ways to structure a business which do not put the assets of the business at risk. In short, what you do is set up the business so that the business itself owns the assets. In the case of a farm, that would likely include the actual real estate, plus the expensive equipment and such. The owners of the business then become employees, and are paid out of the profits like in any normal business. Since the business owners do not technically own the farm (the business does), the estate tax does not apply to those portions of the business when someone dies. If structured properly, the assets that are in each individual person's name would be restricted to liquid assets and personal profits which do not impact the functioning of the business itself.

Think about it any other business context, and you'll see what I mean. Businesses do not go bankrupt due to the loss of half of their assets every time the business founder dies. Such a situation would, quite rightly, be outrageous and cause major problems for the economy. That's why it doesn't work like that.

On top of all of that, anyone who knows they will have estate tax issues can avoid some of it by simply planning ahead. Each couple can gift up to $26,000 per year to any person without incurring any tax penalties. So, if a family has two children and four grandchildren, they could give away $156,000 per year tax free. And that's assuming each child is not married. If they are all married, that doubles the number of people who can receive gifts, and allows a transfer of $52,000 to each couple, for a total of $312,000 per year to 2 married children and 4 married grandchildren. To ensure the money is handled properly, it can be put into trusts with whatever access restrictions on them that the parents desire. Plan far enough ahead, and a family can easily transfer millions of dollars to their heirs tax-free, all of which will reduce the exposure of their remaining estate to the estate tax as well. If you have so much money that even 10-20 years of structured trusts and gifts won't clear your exposure... well, perhaps you're just really, really wealthy and your heirs aren't at risk of being impoverished by the estate tax.

[ICantSpellDawg]

Thanks, TinCow!

[Centurion1]

SFTS always seems to know what the answer is....... after the answer is posted.

The estate tax is what it is. I don't particularly like it but we all know it is probably not going to go anywhere. I wonder if in the case of a true small business it would be possible for the US government to distinguish between legitimate businesses and personal wealth. Because as CR said its not unfathomable to imagine a small business worth more than 2-3 million especially depending on its type and location.

[Strike For The South]

SFTS always seems to know what the answer is....... after the answer is posted..

I stopped reading after "family farm"

I mean really? Also the hiliraty that there is somehow this massive group of yeoman farmers still out there makes me double over in laughter.

[Centurion1]

I mean really? Also the hiliraty that there is somehow this massive group of yeoman farmers still out there makes me double over in laughter.

There are. Plenty of 500-1000 acre farms owned by a single family in comparison to the conglomerates I imagine you picture. And plenty of those farms are worth quite a pretty penny. Anyway theres a federal exemption for them so, meh.

As I said my concern is with other things.