Ahead of a close and uncertain presidential election, wealthy Americans are calling on real estate lawyers to defend themselves against tax raids.
In particular, the idea of higher inheritance taxes scares wealthy Americans. If a change under the 2017 tax cuts expires as planned after 2025 – which is considered more likely with Vice President Kamala Harris in the White House and Democrats in the majority in Congress – the minimum wealth subject to the inheritance tax would be cut in half to around $7 million per person, writes the Wall Street Journal.
This will affect nearly 10,000 Americans. But they can choose to move their money, just like Norwegian billionaires moving to Switzerland. The municipality of Asker lost around NOK 200 million in annual tax revenue when billionaire Røkke moved away from the tax haven.
It’s debatable whether it pays to draw up a secure estate plan for tax policies that are not settled. But rich people like to be prepared for every crazy idea the state can come up with. Socialists in all Western countries dream of fleecing the rich, but the bill ends up with the working and middle classes, since the rich can always escape.
By making large gifts during their lifetime and setting up certain types of trusts for spouses or children, people can remove millions from the balance subject to the inheritance tax.
The advisers also say that the window of opportunity to make such tax-saving moves is shrinking – and that it pays to do the work in advance if you’re considering setting up a trust.
Initially, Democrats in Congress want an estate tax overhaul, but Harris herself hasn’t spoken out on the matter, nor will her campaign respond to requests for comment. But most people realise that explosive growth in public spending needs to be funded, and when was the last time you saw a socialist with solutions other than higher taxes?
Former President Donald Trump wants to make the higher inheritance tax limit permanent, along with the rest of the 2017 tax cuts. In a divided government, this will be part of messy, complex negotiations over trillions of dollars in expiring tax cuts. A Republican election victory, meanwhile, could make it possible to abolish the inheritance tax altogether.
Throwing millions
Even without the election, many more families have set up trusts in recent years to protect assets from creditors and divorce settlements, as well as to save tax on the estate.
The maximum wealth someone can die with – or give away – without having to pay inheritance tax is $13.61 million today. Indexed for inflation, this limit is expected to reach $13.99 million in 2025, according to Wolters Kluwer Tax & Accounting. With proper planning, a married couple can shield twice that amount from the inheritance tax. The highest estate tax rate is 40 per cent.
Of course, we don’t feel sorry for people with a fortune of almost NOK 150 million. But if they take their money and run, then spending is sent downwards, the socialists’ version of the mythical trickle down theory.
Tim Starkey, a financial planner in Morristown, N.J., said he helped a client worth about $50 million set up irrevocable trusts for himself and his wife last year, in anticipation of the tax cuts expiring and to get ahead of the Democrats’ election victory in November.
Biden had plans to change the rules for trusts that allow the person setting up the trust to pay income tax and essentially transfer more wealth to heirs tax-free. The Harris campaign has said it supports Biden’s budget proposal on the whole.</p
If you don’t have $50 million …
Married people worth at least $7 million, and married couples worth twice that, should be talking about the estate tax, an estate lawyer tells WSJ.
– It’s not just a snapshot right now. You have to think about your net worth in the future,” says Aaron Burton, a housing attorney in Denver.
Then you have to consider how much you want to pass on to descendants, how much you want to give to charity, and at the same time decide how much your spouse should control.
Other thoughts
There’s also a big risk of acting before the government finalises a plan.
Many Americans made wealth moves to avoid the inheritance tax in 2012. At the time, financial advisors warned clients that the exemption could drop from $5 million to $1 million. Some people who made large gifts using irrevocable trusts at the time later had second thoughts.
Dawn Jinsky, an accountant and financial planner at Plante Moran in Southfield, Michigan, recently had a conversation with a married couple in their mid-50s who had a $35 million fortune and decided not to move forward with an irrevocable trust.
“They didn’t want to regret the decision,” she says. They’re looking at other ideas, including making annual tax-free gifts.
Anyone can make tax-free gifts of up to $18,000 to an unlimited number of people this year. Elizabeth Warren is proposing a limit of $10,000 per gift and a total annual cap on tax-free gifts someone can give in a year of $20,000. Warren clearly believes the government needs money more than descendants and poor Americans.
In practice, ripping off the rich means ripping off those who belong to the lower strata of the population. The election in November matters most to ordinary workers. The filthy rich will be fine either way.