It seems no matter what you do in life, one thing stays the same, death and taxes. Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” (Franklin, “Nothing is certain but death and taxes”, phrases.org.uk, phrase 5) We live by our own means, supporting our families and paying taxes to support our countries. No matter what happens in our lives, with our money, “You can’t take it with you!”
“When you die, you leave your money, your home, your possessions and other things of material value behind. You’ll pass them down to your children, to other family members or friends, or to charity. And one way or another, the government will take its share.” (Grasbianowski & Barrymore, “How Inheritance Tax Works”, Retrieved July 29, 2011, money.howstuffworks.com, paragraph 3)
For all practical purposes, we often look at taxes as tribute for living in our home countries. We are fortunate in the United States, our citizens’ care what happens with our tax money. Are our representatives in Washington looking out for our best interests? Is our military strong enough to defend us from the evils around the world? Do our representatives listen to what the citizens have to say or are our words falling on deaf ears? These are issues that face us during our lifetimes.
Legal terms can be confusing, so let us begin with the two terms often associated with inheritance tax, “estate tax” and “inheritance tax.” Estate tax refers to the possessions and debt which is left by the deceased, when a person passes away. There are often debts and possessions which are distributed to loved ones, after a passing, but there are always various sources of debt, to be taken care of. An executor, whom is left “in charge” of the estate, which is determined by the deceased (prior to death), are responsible for paying off any debts the deceased might have had in life. Then the federal government receives taxes on the entire estate, while some states also have an estate tax which is called the “inheritance tax.” Both of these taxes are often referred to as “the death tax.”
Some people believe inheritance taxes raise funds from the wealthy or affluent of our society, as if the more affluent would pay other families taxes, they will not! Other critics believe the inheritance tax is a “double tax,” where since the tax payer, paid the tax, and then the taxes should be omitted.
If we view the taxes as a normal part of life, we might have a difference of opinion. While the deceased was living, they paid their taxes and saved for a rainy day. A person has to admit, if we do not save for a rainy day, personal finances might be difficult should an emergency appear on the horizon. But even after an emergency, the monetary funds in a savings or checking account can become an issue when a person passes away.
Most people would admit that when a loved one passes away, they would not be in favor of a member of the Internal Revenue Service standing at their front door, demanding taxes. Not only would the government appear unsympathetic, but the representative would probably be chased off the property by the family dog, “Oh Fido…. sick ‘em!”
Some critics of the inheritance tax believe the tax to be a double tax, as if even in death a person should pay their own way. We come into this world with our parents paying taxes, why shouldn’t we have to pay to leave this world? Other critics believe the “Inheritance tax penalizes thrift and hard work.” (White, April 15, 2008, “In Defense of Inheritance Tax”, newstatesman.com, paragraph 6)
Depending on the “rainy day” fund, inheritance taxes can be quite a burden on the family left behind. Should the inheritance, be considerably high (in the millions), an attorney would be in the best interest of people whom are quite affluent. The current limit (2011) for amount-based exemptions is $5 million a person, if the estate value is below this limit, the estate tax is free. This is the cause of estate taxes being considered “a rich man’s tax.”
So how do we determine if there is an inheritance tax? If we calculate the estate, of the deceased, our goals are to include the entire estate, which would include cash on hand, bank accounts, stocks and bonds, real estate, insurance, and other items of value (as fair market value). This is considered the Gross Estate value. Next is the Adjusted Gross Estate value, which is determined by paying-off any bills, such as mortgage or other debts. Included in this estimate would be attorney fees, then finally the Marital Deduction, if there is a surviving spouse. Through this process of determining the assets and debts, we sum up the Net Value of property, which becomes our inheritance tax basis.
For the beneficiaries of an upcoming Inheritance tax, this can be a grueling process. Not only do they have to say their final fair wells to a loved one, but the additional burden of settling an estate can be quite (forgive the pun) “taxing.” Sometimes the issue of an inheritance tax can cause outbreaks of sibling rivalry or for lack of a better phrase a “family feud.” When money or inheritances are the key issues, between family members, they should stop bickering and focus on the wishes of their deceased loved one. Families are the only true possessions that
cannot be taken away from us, unless by divine intervention.
Many people believe the inheritance tax or estate tax is our government going too far with charging taxes on everything. We have sales tax, road tax, excise tax, income tax, social security tax (which is another story all together), customs tax, service tax, property tax, etc. Geez, with all of these taxes, how do we live the American Dream? Some people believe Uncle Sam is standing behind them waiting for them to make a purchase, so he can reach in their pocket and take his share. With all of these taxes, how come our economy is running at a low rate? And when American’s watch the evening news, they are bombarded by governmental officials traveling the world on their tax money. If the subject was left up to the American public, whether inheritance taxes or estate taxes, should be omitted from the tax code, the popular vote would set a new precedence.
There are several states that have estate taxes or inheritance taxes. Estate taxes are charged in New Mexico, Nebraska, New Jersey, Pennsylvania, South Carolina, and Tennessee. While inheritance taxed states include Missouri, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. When a person contemplates where they may wish to retire, this maybe of substance to consider. Every state should be considered when contemplation of retirement. The variances of location will have an impact on a person’s whole family. Weather patterns, neighbors, geographic area to loved ones, physical activities, cultural activities, home town, all of these issues should be considered, when choosing a place to retire. But the biggest issue is on which state would deserve the taxes a person will pay, including if Inheritance taxes are considered.
While in the countries of Belgium, Czech Republic, Finland, France, Germany, Ireland, Italy, The Netherlands, Norway, and the United Kingdom, have inheritance taxes. Other countries such as Australia, Austria, Canada, Hong Kong, Israel, New Zealand, Russia, Singapore and Sweden have abolished inheritance taxes. Some counties have considered the possibilities of their actions can have for the moral stability of their citizens. The idea of abolishing inheritance taxes worldwide would give citizens of every country a positive view of their own political representatives.
OK, you might ask, “How can we get around the inheritance tax?” One of the ways around the inheritance tax is by jointly owning property, such as a home, automobile, real estate, etc. If the property in question has been owned jointly for over a year, the taxes would be 50%, less than a year, 100% of the value.
Other options to avoid inheritance taxes, for your family, could consist of contributing to charitable organizations: church funds, the United Way, veterans organizations, the Red Cross, Boys and Girls Clubs, political parties, etc. These options could benefit people who might not otherwise have the financial means to support their activities.
Schools are especially affected by contributions toward scholarship finds or donations toward buildings, pools, libraries, etc., which will benefit future generations. We all want to pass on a legacy to future generations, why not have a scholarship named after you, for a student who could use the education? These are all possibilities to consider. When we pass on, we should consider these options not as a hand out, but a hand up.
If you own stocks or bonds, and wish to avoid your loved ones paying inheritance taxes, you will need an inheritance tax waiver, for transferring ownership. Of course at that time, the new owner would then be responsible for paying the taxes on those stocks.
With the passing of a loved one, which one day will include us, we should consider the lives and legacy we will pass on to our loved ones. Will we pass on our debts for our loved ones to pay? This is one of major factors all of us have when we purchase life insurance. When we are there for our children who will have their baptism, sports games, music recitals, when they are hurt, we all want to be there for them in their time of crisis or glory. Whatever our effort for our loved ones are, our hope is to be there to aide them in their quest for acknowledgement, short lived fame (scoring a goal), to pat them on the back for a job well done, their weddings, or their first child. None of us want to be a burden on our families when we have been “called home,” but through careful consideration of our financial options, we can avoid the risk or responsibilities our families will have to face, without us.
When we consider our own passing from this world, to the next, should we have to contemplate paying inheritance taxes, from our rainy day fund we have worked our lives to save? We want our children to inherit our most cherished possessions, as well as what funds are left from our rainy day fund. Our children are the future, they are extensions of us.
Sometimes when we watch our children, we may live vicariously through them. Through the thought of our children’s achievements, we walk a little taller, smile a little more often, laugh a little freer, and enjoy live God blessed us with, a whole lot more.
In this Arthur’s opinion, Inheritance taxes should be considered illegal. The pain of losing a loved one is tough enough, without a tax collector rubbing salt into an open wound. A person should be able to pass from this world to the next, with honor and gleeful expressions for the life they lived. When my own father passed away, he was well loved. He was a man of honor who loved his family and community.
We all know when we pass from our physical being to the next world, we will still what to watch over our children, that is a given. The last thing we want to burden our children with is a dark cloud of the tax collector, knocking on their door. We can’t take it with us, but we can at least attempt to make our loved ones lives a little better, when we are called home. When it is this Arthur’s turn to be called home, I would like to meet those who have passed before me to say, “You did good, kid!,” when I meet them at St. Peter’s Gate.
One issue you should remember, no matter what you do in life, all of your fame (if you have any) or fortune will do you no good in the next life, “You can’t take it with you!”
Works cited:
Franklin, Benjamin (Retrieved July 29, 2011) “Nothing is certain but death and taxes”,
http://www.phrases.org.uk/meanings/death-and-taxes.html
Grabianowski, Ed & Barrymore, John (Retrieved July 29, 2011), “How Inheritance Tax Works”, found at http://money.howstuffworks.com/personal-finance/personal-income-taxes/inheritance-tax.htm
White, Stuart (April 15, 2008) “In Defense of Inheritance Tax” (Retrieved July 29, 2011), http://www.newstatesman.com/politics/2008/04/inheritance-tax-stuart-white
References:
Grabianowski, Ed & Barrymore, John (Retrieved July 29, 2011), “How Inheritance Tax Works”, found at http://money.howstuffworks.com/personal-finance/personal-income-taxes/inheritance-tax.htm
Anonymous, (2005) “Federal Inheritance Tax” (Retrieved July 29, 2011)
http://www.money-zine.com/Financial-Planning/Tax-Shelter/Federal-Inheritance-Tax/
Reisman, George (2001) “A Wage Earner’s Case for Repealing the Inheritance Tax”, (Retrieved July 29, 2011) http://www.capitalism.net/articles/Inhertax.html
Weston, Liz Pulliam (Retrieved July 29, 2011) “The ‘Death Tax’ is far from dead”, http://articles.moneycentral.msn.com/RetirementandWills/PlanYourEstate/TheDeathTaxIsFarFromDead.aspx
Ellis, Frank (2010) “Understanding Federal Inheritance Tax Laws” (Retrieved July 29, 2011), http://frankellis.hubpages.com/hub/federal-inheritance-tax
Morrissey, Janet (June 4, 2009) “How to Avoid the ‘Death Tax”, (Retrieved July 29, 2011), http://money.cnn.com/2009/06/03/pf/Death_tax_morrissey.fortune/index.htm