The majority of people here in the United States feel a sense of patriotism and there has always been a strong underpinning of common sense grounding the populace. Everyone knows that roads don’t fix themselves, bridges aren’t built for free, and policemen, firefighters, and teachers need to get paid. So we pay our taxes quite willingly as long as the rate seems fair and we can see the ways that we benefit from our contributions. But one thing people don’t want to do is pay their taxes more than once.
This is what makes the estate tax so hard to swallow. We have all heard about the reduction in the estate tax rate down to 35% from the 55% that had been anticipated. Any reduction is great, but how in the world was the tax set at 55%? How can you justify a tax that takes more than it leaves? Since it was so high, 35% seems almost reasonable, but it really is not. If it took you your entire life to accumulate the assets in your estate, how disappointing is it for your heirs to watch more than a third of its taxable portion disappear instantly upon your death?
Plus, the resources that comprise your estate were all acquired with money that you had left over after you paid income and payroll taxes. So the estate tax is inherently an instance of double taxation. But after your children pay the estate tax, when they ultimately leave the remainder of what they inherited from you to their children, the estate tax will be levied yet again!
One response to this double and triple taxation is the legacy trust, which is also called a generation skipping trust. With these vehicles you name your grandchildren as beneficiaries rather than your children. Your children can benefit from the trust and receive cash distributions but claimants against them can’t target the trust’s assets and no estate or gift tax is due. When they die, your grandchildren assume ownership of the assets and the estate tax is levied just once though the resources were used by two generations.
- Benefits of Choosing a Nursing Home in Advance - July 5, 2022
- You Say You Don’t Need An Estate Plan? - June 24, 2022
- Estate Planning: Have You Provided For Your Pet? - June 20, 2022
