Fixing America

[Thermal]

I struggle to understand why anyone who isn't the child or the living spouse should have any automatic claim on the deceased's money at all, let alone tax free. It's an unearned windfall which very few people are lucky enough to get, the least they can do is pay tax on it.

We are not talking about paying taxes on it, which you are responsible for one way or another (capital gains, property, etc). We are talking about before any of that happens, you have to pony up an additional 15% of the market value in cash and hand it to the State before you can even take possession.

As an example, the property I am talking about is a modest one bedroom flat (condo) originally owned by my wife's grandfather. When he passed, my wife's uncle took it over, because no one in the direct line had the cash assets to pay the inheritance tax up front, in addition to the other taxes and costs (at the time, a child was still responsible for the additional and up-front 15%+). Now that he passed, it reverts back to the straight line descendant, but with the inheritance tax (in addition to the other taxes and liabilities) now on my wife.

And again, the hitch is not the general tax liability. It's the additional 15% tax up front, in cash, within a few months of the death, based on the full market value (as Brainster pointed out, not its actual unincumbered worth). To people who don't have much, that's a deal breaker. Sometimes the most reasonable option is to simply surrender the property to the State, lest they tax forclose and the estate (you) being responsible for those costs too.

By the way, it doesn't only apply to real estate. If you inherit your grandmother's wedding ring to hand down as an heirloom (not as liquid assets), the State says "not so fast- we want 15% in cash up front on that puppy, too, before you can have it". Keep in mind the previous inheritor had to pay that same 15% when they took possession of it too. Repeated taxes on unrealized value.

 

[Thermal]

I agree. We all pay taxes on income. An inheritance tax is basically that.

No. It's additional to cap gains. Above and beyond and in full up front. Plus if you sell the estate, there is yet another additional 11% kicked beck to the State, again.

I mean, can you guys picture being given a birthday present, and an agent of the State is sitting next to you saying "I want 15% of the value of that gift in cash right now, in addition to the other taxes you normally pay on a capital gain, before you take that gift".

 

[acbytesla]

No. It's additional to cap gains. Above and beyond and in full up front. Plus if you sell the estate, there is yet another additional 11% kicked beck to the State, again.

I mean, can you guys picture being given a birthday present from a parent, and an agent of the State is sitting next to you saying "I want 15% of the value of that gift in cash right now, in addition to the other taxes you normally pay on a capital gain, before you take that gift".

You need to separate in your mind the estate and the heir. They are two different entities The estate should pay outstanding capital gains taxes.
Your wife being a niece as opposed to a child or grandchild is not exempt from inheritance taxes. She is considered a stranger legally.

And even a birthday gift above a certain amount can be taxable. IE: Gift taxes. Settling estates is complicated.

 

[Thermal]

You need to separate in your mind the estate and the heir. They are two different entities

No, they are not. "The estate" is just your families stuff, which lawyers and tax collectors have convinced everyone is now a new entity that they can siphon money out of, for their own coffer padding at the expense of the survivors. The whole concept of the State sticking their hand into a death to milk out some additional cash, in addition to the capital gains that the survivors would be rightfully paying, is revolting. That they demand it fast, in full, and up front, is greedy beyond words.

The estate should pay outstanding capital gains taxes.

We are not talking about outstanding caps. We are talking about the heir's cap gains tax, that they will have to pay when they do the year's taxes. Again, the inheritance/estate tax is a money-grub above and beyond those, and cannot be deferred to a later time.

Your wife being a niece as opposed to a child or grandchild is not exempt from inheritance taxes. She is considered a stranger legally.

Yes, which is yet another layer of obscenity. It was bypassed to her directly because she would not have been able to pay the inheritance tax when her grandfather died (inheritance for direct descendants still in effect at the time). Now they get to pay the inheritance tax for a second time. Hey, by the time our grandkids inherit it, the State will have damn near collected its entire value, above and beyond its taxes paid along the way. Ya there's nothing obscene about an inheritance tax.

And even a birthday gift above a certain amount can be taxable. IE: Gift taxes.

Yes, as income/cap gains. Inheritance is 15% above and beyond that. Its a totally separate animal.

Settling estates is complicated.

It is made to be so, by those who stand to siphon off as much as they can.

Like, conceptually: in the event of a death, there is one line on the property deed that indicates who the property passes on to, in asset and liability. There should be no tax (including cap gains) until the property is sold/cashed out. Yes, I believe unrealized assets should be untaxed till the asset is liquidated and realized. If you now get to live mortgage free, great. The money you would have spent on your mortgage payments is now taxable as straight income, as always. The State still collects its pound of flesh.

 

[acbytesla]

I'm sorry, but I beg to differ. The estate is the deceased person's property and liabilities. The heirs are not that. They are those entities that are entitled to those assets minus whatever liabilities remain. The liabilities must be paid before the assets are distributed to the heirs. Surely, you can understand that. Estate taxes are a tax liability. Fortunately NJ doesn't have a estate tax. But property taxes and bills must be paid. And maybe unrealized capital gains taxes depending on the state, county and municipality. How you know they are two different entities is the heirs can walk away from an estate if the liabilities exceed the assets.

Inheritance taxes is a tax not on an estate. It's a tax on an heir. Something an heir is responsible for. But you can always choose to decline an inheritance and not be responsible for the taxes.

 

[theprestige]

You need to separate in your mind the estate and the heir. They are two different entities The estate should pay outstanding capital gains taxes.
Your wife being a niece as opposed to a child or grandchild is not exempt from inheritance taxes. She is considered a stranger legally.

And even a birthday gift above a certain amount can be taxable. IE: Gift taxes. Settling estates is complicated.

This isn't about how complicated or messy it is. Even the simplest, cleanest probate ever won't get you the house, if you can't afford to pay the property tax on it.

In the 1950s, my grandfather buys an affordable, middle class, single family home in a small town in a largely agricultural region at the southern end of the San Francisco peninsula.

Over time, the town grows, the property increases in value, and the property taxes increase as well.

Then California passes Proposition 13, which caps property tax increases on primary dwellings. This allows many Californians to keep living in their family homes, especially after retirement, when their income is fixed and can't keep up with tax increases.

However, when the house changes owners - including through inheritance - the property tax is raised to match the current value of the property.

The San Francisco Bay Area becomes Silicon Valley, one of the most expensive property markets in the country. When my grandparents passed in the early 2000s, their house was now in a neighborhood that only the wealthiest tech bros can afford to buy houses in, and the property taxes are commensurately high. Even pooling their resources, my mother and her three siblings could simply not afford to take possession of the house, due to the tax burden it had accrued over the past 70 years.

This is not a scenario you can rules lawyer or nitpick your way out of. It's a simple fact of home ownership in California, and one that Californians are quite familiar with.

 

[Thermal]

I'm sorry, but I beg to differ. The estate is the deceased person's property and liabilities. The heirs are not that. They are those entities that are entitled to those assets minus whatever liabilities remain. The liabilities must be paid before the assets are distributed to the heirs. Surely, you can understand that.

Of course. Not what we are talking about though.

Estate taxes are a tax liability.

This is what we are talking about. They should not be. They are the equivalent of a ◊◊◊◊◊◊◊ gangster demanding a cut of that which they have no claim on, and under unreasonable terms. If they at least let you liquidate/mortgage the property, and pay the extortion tax out of those funds, it would be +/- in the human range. But they have set it up to work against the poor, as always.

Fortunately NJ doesn't have a estate tax.

It does. We have been talking about it in considerable detail. My wife is currently subject to what you keep inexplicably insisting does not exist.

But property taxes and bills must be paid.

Not disputed. Do we have bad acoustics in here or something?

And maybe unrealized capital gains taxes depending on the state, county and municipality. How you know they are two different entities is the heirs can walk away from an estate if the liabilities exceed the assets.

Inheritance taxes is a tax not on an estate. It's a tax on an heir. Something an heir is responsible for. But you can always choose to decline an inheritance and not be responsible for the taxes.

LOL, yeah, you can lose it all because the State demands an additional cut under unreasonable ◊◊◊◊◊◊◊ loan shark terms. That's totally reasonable.

 

[acbytesla]

Your wife being a niece as opposed to a child or grandchild is not exempt from inheritance taxes. She is considered a stranger legally.

Yes, which is yet another layer of obscenity. It was bypassed to her directly because she would not have been able to pay the inheritance tax when her grandfather died (inheritance for direct descendants still in effect at the time). Now they get to pay the inheritance tax for a second time. Hey, by the time our grandkids inherit it, the State will have damn near collected its entire value, above and beyond its taxes paid along the way. Ya there's nothing obscene about an inheritance tax.

Hey, don't blame me for NJ's tax structure. I didn't write the law. I still think it is reasonable for the state to draw a line somewhere. And I get why they would draw it with spouses, children and grandchildren. As opposed to neices and nephew's, cousins etc. This is why a little estate planning can go a long ways. It's also another difference between the very wealthy and the rest of us. They plan for their demise and find ways around of paying the tax bills the rest of us have to pay.

 

[TellyKNeasuss]

Inheritance taxes is a tax not on an estate. It's a tax on an heir. Something an heir is responsible for. But you can always choose to decline an inheritance and not be responsible for the taxes.

In New Jersey, inheritance taxes are paid by the estate rather than by the heirs.

 

[acbytesla]

This is what we are talking about. They should not be. They are the equivalent of a ◊◊◊◊◊◊◊ gangster demanding a cut of that which they have no claim on,

But they do have a claim.

and under unreasonable terms. If they at least let you liquidate/mortgage the property, and pay the extortion tax out of those funds, it would be +/- in the human range. But they have set it up to work against the poor, as always.

On this I agree. There should be a methodology where an heir can get a mortgage on real estate in an estate to settle the tax liabilities. But I can also see why it would be challenging when there is more than one heir.

It does. We have been talking about it in considerable detail. My wife is currently subject to what you keep inexplicably insisting does not exist.

I'm not sure what you're saying here.

 

[Thermal]

Hey, don't blame me for NJ's tax structure. I didn't write the law.

I'm not. I'm pointing out that it is revolting. And how this all started was your assertion that estate taxes don't apply to estates under $14 million. As I keep repeating, the hell they don't. That's just the Feds. The State is the primary gangsta in this game.

I still think it is reasonable for the state to draw a line somewhere. And I get why they would draw it with spouses, children and grandchildren. As opposed to neices and nephew's, cousins etc. This is why a little estate planning can go a long ways. It's also another difference between the very wealthy and the rest of us. They plan for their demise and find ways around of paying the tax bills the rest of us have to pay.

As I said, this particular hustle is rigged heavily against the poor. Another fun thing the State does: the estate has to pay to have goods appraised, so the State insures itself that it is milking the maximum possible dollar amount out of this. And since their payoff starts at a measley $500, it's a lot of appraising expense.

I mean, if you are willed a sentimental ring that is worth a lousy $500, the State steps in and says "naw man, you gotta give me $75 in cash, now, or you cant have it". That's disgusting.

 

[acbytesla]

In New Jersey, inheritance taxes are paid by the estate rather than by the heirs.

I'm pretty familiar with Washington State's estate and probate laws. But every state is different. Are you sure about that? Or is it just that the heirs must pay the taxes before they can receive their Inheritance?

 

[Thermal]

But they do have a claim.

A scummy one, to my eye. And not likely one that we ever voted on.

On this I agree. There should be a methodology where an heir can get a mortgage on real estate in an estate to settle the tax liabilities. But I can also see why it would be challenging when there is more than one heir.

Yes, that is largely what makes it problematic.

I'm not sure what you're saying here.

You said "Fortunately, NJ does not have an estate tax" (post #165). I have made it beyond crystal clear that they in fact do, and acknowledge it quite publicly. There are a few exceptions to it, although

{ETA: sorry, I'm getting scrambled a bit here. There is no estate tax, just the inheritance tax. The terms get used almost interchangably (even by the State) and I glazed over a bit there}

...as Brainster pointed out, you can't really expect the State division of taxation to play remotely fair, or even sane, when there is a shakedown available to them. YMMV.

 

[Thermal]

In New Jersey, inheritance taxes are paid by the estate rather than by the heirs.

When the estate is cash poor (as many of us poor folk are), how do you suppose that tax gets collected?

Also, you are wrong. From my beloved Garden State:

"An estate tax is levied against your estate, or the whole of what you own when you die. It's based on the total value of your cash, investments, property and other assets. An inheritance tax is levied against your beneficiaries, or those who received something from you upon your death."

 

[TomB]

It's not the inheritance tax, it's the property tax.

I've actually never been a particular fan of property taxes. It feels like I bought my house and I still have to pay rent.

However, I recognize that local governments need a revenue source in order to pay for things like schools, roads, libraries, police and fire protection. Other than property taxes, the local option is pretty much sales taxes. I guess you could do a local income tax, but I hate that even more.

You are talking about proposition 19 right? Where upon transfer of ownership the property is reassessed?
Such a thing doesn't make sense in Illinois terms.

Our property assessment and tax rates change continuously. technically, my house is reassessed every year. When I moved in, my taxes were around $2400/year I think. (30 years ago...can't remember specifically.) Now they are a little over $4000/year.

Generally, the reassessment does not involve them visiting your house. But if you were to make major changes that increase the living space (an addition, for example) the building process may trigger a reassessment. But reassessing my parents house upon their death would not have changed the tax rate. (There is, however, a senior citizen's discount that my brothers and I would not have been eligible for.)

 

[TomB]

We are not talking about paying taxes on it, which you are responsible for one way or another (capital gains, property, etc). We are talking about before any of that happens, you have to pony up an additional 15% of the market value in cash and hand it to the State before you can even take possession.
As an example, the property I am talking about is a modest one bedroom flat (condo) originally owned by my wife's grandfather. When he passed, my wife's uncle took it over, because no one in the direct line had the cash assets to pay the inheritance tax up front, in addition to the other taxes and costs (at the time, a child was still responsible for the additional and up-front 15%+). Now that he passed, it reverts back to the straight line descendant, but with the inheritance tax (in addition to the other taxes and liabilities) now on my wife.

And again, the hitch is not the general tax liability. It's the additional 15% tax up front, in cash, within a few months of the death, based on the full market value (as Brainster pointed out, not its actual unincumbered worth). To people who don't have much, that's a deal breaker. Sometimes the most reasonable option is to simply surrender the property to the State, lest they tax forclose and the estate (you) being responsible for those costs too.

By the way, it doesn't only apply to real estate. If you inherit your grandmother's wedding ring to hand down as an heirloom (not as liquid assets), the State says "not so fast- we want 15% in cash up front on that puppy, too, before you can have it". Keep in mind the previous inheritor had to pay that same 15% when they took possession of it too. Repeated taxes on unrealized value.

So what you do is send out emails to a bunch of people stating that you need money in order to get the money owed to you from your inheritance. I understand it's worked well for a number of Nigerian princes.

 

[TomB]

No, they are not. "The estate" is just your families stuff, which lawyers and tax collectors have convinced everyone is now a new entity that they can siphon money out of, for their own coffer padding at the expense of the survivors. The whole concept of the State sticking their hand into a death to milk out some additional cash, in addition to the capital gains that the survivors would be rightfully paying, is revolting. That they demand it fast, in full, and up front, is greedy beyond words.

We are not talking about outstanding caps. We are talking about the heir's cap gains tax, that they will have to pay when they do the year's taxes. Again, the inheritance/estate tax is a money-grub above and beyond those, and cannot be deferred to a later time.

Yes, which is yet another layer of obscenity. It was bypassed to her directly because she would not have been able to pay the inheritance tax when her grandfather died (inheritance for direct descendants still in effect at the time). Now they get to pay the inheritance tax for a second time. Hey, by the time our grandkids inherit it, the State will have damn near collected its entire value, above and beyond its taxes paid along the way. Ya there's nothing obscene about an inheritance tax.

Yes, as income/cap gains. Inheritance is 15% above and beyond that. Its a totally separate animal.

It is made to be so, by those who stand to siphon off as much as they can.

Like, conceptually: in the event of a death, there is one line on the property deed that indicates who the property passes on to, in asset and liability. There should be no tax (including cap gains) until the property is sold/cashed out. Yes, I believe unrealized assets should be untaxed till the asset is liquidated and realized. If you now get to live mortgage free, great. The money you would have spent on your mortgage payments is now taxable as straight income, as always. The State still collects its pound of flesh.

I agree with the highlighted.

And that's pretty much how it is in Illinois. There was no tax on my mom's estate as Illinois estate taxes don't kick in until $4 million. However, all taxes are paid by the estate, not the beneficiaries. And the title does not have to be transferred before sale. We pooled all of my mom's assets, sold the house and added the assets to the pool. The estate paid for the funeral and legal expenses and then cut us each a check. As far as smaller stuff, when we cleaned out her house, we each took any furniture, jewelry, or other items we wanted. we gave her piano to my niece. The estate actually still exists. My mom owned 1/4 of the mineral rights on an oil well in Kansas. (Property used to be my grandfather's farm.) So I now get royalties on 1/16 of an oil well. After the estate paid the taxes last year I got $170. Woo Hoo, I'm an oil baron!

Anyway, had the estate been greater than 4 Million, the same would have applied. the estate pays the estate tax. The individual would have to pay the federal inheritance tax, I think.

 

[acbytesla]

A scummy one, to my eye. And not likely one that we ever voted on.

I don't think so.

You said "Fortunately, NJ does not have an estate tax" (post #165). I have made it beyond crystal clear that they in fact do, and acknowledge it quite publicly. There are a few exceptions to it, although as Brainster pointed out, you can't really expect the State division of taxation to play remotely fair, or even sane, when there is a shakedown available to them. YMMV.

NJ doesn't have an estate tax. But they do have inheritance taxes. My state has estate taxes, but doesn't have inheritance taxes. If you were a church, a non-profit or if you were the spouse or child of the deceased, you would be exempt from that. They get every dime. But you're a Class D heir which is taxed 15% from $0 up til $700,000 and 16% above that. But the good news is there isn't any Federal tax on the inheritance.

Unfortunately, everyone eeceiving an inheritance always first sees the value of the assets and then the liabilities always comes later whittling the size of the inheritance.

 

[Thermal]

I don't think so.

NJ doesn't have an estate tax. But they do have inheritance taxes. My state has estate taxes, but doesn't have inheritance taxes. If you were a church, a non-profit or if you were the spouse or child of the deceased, you would be exempt from that. They get every dime. But you're a Class D heir which is taxed 15% from $0 up til $700,000 and 16% above that. But the good news is there isn't any Federal tax on the inheritance.

*Feds crack their knuckles over Capital Gains tax forms and smirk*

Unfortunately, everyone eeceiving an inheritance always first sees the value of the assets and then the liabilities always comes later whittling the size of the inheritance.

Corrected in ETA to the post you are responding to. Mea culpa. Even the taxation people we dealt with use the terms a bit loosely.

 

[acbytesla]

*Feds crack their knuckles over Capital Gains tax forms and smirk*

Corrected in ETA to the post you are responding to. Mea culpa. Even the taxation people we dealt with use the terms a bit loosely.

Yeah, they do. And I didn't realize you have the inheritance taxes to deal with.

But there is a silver lining. At least you're not paying both estate and inheritance taxes which you would have had to before 2018.

This is one of the reasons I would like to eliminate States. Or at least having a national tax code. The myriad of different State tax laws allows for a lot of tax gamesmanship.