Major change for heirs of coins/bullion in new legislation
derryb
Posts: 36,263 ✭✭✭✭✭
Estate taxes big target for a Washington in need of cash
The “Sensible Taxation and Equity Promotion” Act of 2021, among other things, will reduce the estate exemption from $11.2M to $1M. And, it will be retroactive to Jan. 1.
"Just about every asset is included, ranging from real estate to a small family business. They even specifically included collectibles like art, gold, and rare coins."
Currently an heir assigns current market value as his cost basis when he inherits a coin collection (or any asset), commonly referred to as "step up basis." This means when he sells it he uses his new, higher "cost basis" to calculate taxable profit and not the deceased's original (and normally much lower) cost (priced paid). This current method saves the heir a lot capital gains taxes. Most importantly, this current tax "loophole" dictates that it is best, tax wise, to not sell an asset before death with plans to leave the proceeds to his heirs. Better to let the heir inherit the asset and then sell it with a much lower tax liability.
Under the new legislation not only is the exemption threshold reduced by 1000%, but the "step up basis" loophole is removed as well. At time of death the assets get assigned a current fair market value with tax immediately imposed on the difference between original purchase price and the current fair market value. They will tax your assets as if you sold them on the day you die.
If passed, this legislation calls for many to re-evaluate their existing wills, trusts and estate planning with, of course, professional advice. It will also remove the advantage of waiting until after death to sell an asset that is planned on going to an heir.
While this issue encompasses all assets, let's remind ourselves that here we are concerned about it's impact on our coin collection.
Are they really this stupid, or are they destroying the dollar on purpose?
Comments
Wow.... looks like the taxman cometh.....
Cheers, RickO
So it appears there will be a capital gains tax due on the portion of an estate that exceeds $1M in current fair market value. Could be a life changing tax bill for the heirs. Could force heirs to sell a family asset (family buisness? family heirlooms?) just to get the taxman off their backs.
Are they really this stupid, or are they destroying the dollar on purpose?
Imagine the impact of this act after a decade or so of high inflation.
I would have chosen a number more like $1.5m or $2m, but I agree with the premise of the law.
There are still a million loopholes to avoid paying taxes on inheritances.
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
Likely what it's authors had in mind since inflation will exacerbate the national debt.
May be a good time to start including heirs' names on the deed/title/account.
Are they really this stupid, or are they destroying the dollar on purpose?
I fully understand and support the lowering of the estate tax threshold. It puts a bigger burden on those most able to pay taxes.
But, is it really fair to tax the value of property being transferred from a death? It is not the same as disposing of the property through a sale where capital gains are actually realized and therefore subject to income tax. This new proposal could result in the loss of a family business simply because of a tax bill that can't be paid without liquidating the business. It could also mean your family will have to sell your coin collection or your great grandmother's diamond necklace that they would really love to keep in the family simply because your uncle wants a piece of every dead person's property. It will mean that ALL personal property will eventually be whittled down to nothing left for the decendents after taxes that are imposed every time its current owner dies. If you read the OP link you will see that this is exactly why the medival Magna Carta came into existence.
Are they really this stupid, or are they destroying the dollar on purpose?
Pay your taxes while you're alive, or pay them while you're dead. With the way taxes have been lowered on the wealthy over the past half a century, I am fine with taxing the heck out of estates at the time of transfer. Consider it a win/win. You get to keep more of what you earned while you're alive, and our society ensures that you cover an equitable portion of the bill when you die. Intra-generational wealth is toxic for society, and I say that as an individual that stands to inherit multiple millions.
At any rate, most normal people in the US die virtually broke anyway, thanks to medical bills and geriatric care expenses.
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
The option should be there to maintain the original basis in the property and pay tax when it is sold OR pay tax based on the gain at time of death. The current situation - giving the heirs the stepped-up basis really is a massive give away in terms of tax revenue.
Unfortunately the removal of "step up basis" will also punish the not so wealthy who will in many cases have to sell the family business or the family heirlooms (such as coin collections) just to pay this unjust, additional property tax. It chisels away at the American ideal of providing for your family, even after your death.
Next up - the gift tax exemption limit
Are they really this stupid, or are they destroying the dollar on purpose?
That's my point. There are no income taxes due on my coin collection while I'm alive. But now there will be income taxes on it when I pass it to my kid's who will again pay income taxes when they pass it to their kids. . . and on an on until their is no coin collection left. It will become the government's way to long term bleed it's citizens of their possessions.
The government is saying "'we want a piece of every inherited asset, regardless of the heir's wealth or income, even if it means selling the asset to pay us our cut."
Are they really this stupid, or are they destroying the dollar on purpose?
I'll say this once because it might be deemed political.
This will make it hard for those who wish to pass their family farms on to their children. A million dollars isn't really that much any more when you are talking about real estate. This will be more true if inflation really gets going with the increases in the money supply.
Personally, I don't think that is fair to future generations who have worked the land within a family for a long time.
Please name them so that we have "ammo" when we talk to our planners.
bob
With the national debt, it's inevitable. We can kick the can down the road only so long.
Put the assets you want to give to your kids in an irrevocable trust before you die. Problem solved.
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
the legislation would subject certain transfers into trusts to immediate unrealized capital gains taxes. Likely why they want it to be retroactive.
Are they really this stupid, or are they destroying the dollar on purpose?
The prior thresholds (even without that new cost basis approach) caused a lot of family farms and businesses to be broken up to pay the taxes. Tax reform done some years ago alleviated much of this. Now they want to roll those changes back, and with a vengeance.
There are many motives at play here, many of which are not obvious or transparent. Class warfare and wealth redistribution will not help anyone, only hurt.
America is (was) the kind of place where if you were not happy with your piece of the pie, you didn't need to take some of someone else's. It was not a zero sum game. You could just go out and bake your own pie.
And how in the world can you ever calculate the cost basis on random collectables acquired decades ago? It's just not realistic.
I know how this story ends. When I lived in Europe most of my friends or their parents had Swiss bank accounts. People will do whatever is necessary to protect their assets from confiscatory taxation.
Woe, you have to pay taxes on profits.
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
Inflation will drive up the value of our coin collections which will over time move there value closer to the proposed estate exemption limit.
Are they really this stupid, or are they destroying the dollar on purpose?
The Sensible Taxation and Equity Promotion Act of 2021 (STEP) has little chances of passage as written because it is a non starter for Republicans.
Good Talking Points...That's all it is. Talking Points..
majority rules. lol
Are they really this stupid, or are they destroying the dollar on purpose?
Not in this case. It would take 60 votes in the Senate...
This was one of the biggest factors for the changes in the Estate Tax years ago. The current administration is fine with all businesses being controlled by large businesses they can controll and government. They are doing everything they can to assure they will never be voted out of office. It will be said and done if they are able to do away with the filibuster. I just hope we can hang on, people wake up, and we are able to make changes during the next election.
I would certainly hope if they pass this and try to make it retroactive it would be deemed unconstitutional. That's just the government blatantly stealing money.
What if someone inherited several million dollars in January and donated most of it to charity. Would they be indebted to the government for the rest of their lives because they can't pay the taxes on the money they gave away that they didn't owe taxes on when they got it?
Yes.
--Severian the Lame
I'm in the upper Midwest in an area where the ag economy is huge. There are tons of family farms with land valued at 10m+ that have a very low basis in the land. They are land rich, but their cap rate for the land is absolute crap and their cash flow is crap. If they get zapped with this sort of estate tax they have zero chance of making the payments, even if stretched over 15 years.
What are you guys complaining about? I really don't get it.
If you pulled yourself up by your bootstraps and made enough money to pass on 7 figures at death, why wouldn't you want your heirs to have that same sense of resilience and dogged determination to do so well in life without your help?
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
It isn't a profit or loss until it's liquidated, not when it's simply transferred to a relative(s).
RIP Mom- 1932-2012
"If you pulled yourself up by your bootstraps and made enough money to pass on 7 figures at death, why wouldn't you want your heirs to have that same sense of resilience and dogged determination to do so well in life without your help?"
In other words...
If you pulled yourself up by your bootstraps and made enough money to pass on 7 figures at death, why wouldn't you want to give it to people who will spend it on what they want, not on what you want?
"How to create an oligarchical society in one, easy step."
Professional Numismatist. "It's like God, Family, Country, except Sticker, Plastic, Coin."
No comment other than this is clearly going to get very political and I'm ducking out!
If I pulled myself up by my bootstraps and made enough to pass on 7 figures then you can bet your hiney that while doing so, the government has gotten more than its share of income, corporate, payroll, CG and plenty of other taxes already during my lifetime. A million dollars is jack squat in this economy, and will be even less 4 years hence, believe that. So all this is, is yet another money grab by an inept administration to offset more waste and upcoming myriad entitlements they can't otherwise fund.
RIP Mom- 1932-2012
Spend like a drunkard + always raise taxes = Democrat.
Here in Canada = Liberal or NDP (take your pick).
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
I am waiting for the day when the law changes to simplify the federal tax return to one page containing two questions and a single instruction.
Question #1 What do you own?
Question #2 How much did you make this tax year?
Instruction - Send what you have and what you made this tax year to the IRS at the address set forth below.
This thread doesn't have to be overtly political and it relates directly to coin collecting, rare coins, precious metals, the larger rare collectible community, and in fact the entire reason we and Collector's Universe are here.
I would hope that our members can be civil and discuss the implications, positive and negative, in a search for legitimate answers to a legitimate issue affecting our community. And I would hope our sponsors allow a reasonable discussion to continue so long as our members don't take pot shots and make this discussion unnecessarily political.
--Severian the Lame
Edited... surely an April Fools Joke.
A cruel one at that...
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@derryb
Thanks for the information. I will keep my thoughts to myself and hope that this discussion does not go politically nuclear.
Wayne
Kennedys are my quest...
Well that sucks!
it's crackers to slip a rozzer the dropsy in snide
When the parties pull this section out of the bill, they will both look good to their constituents. This , IMO is a “ Horsetrading Provision.”
IS THIS A APRIL FOOLS JOKE?
Since the proposed bill has Zero chance of passage in the Senate, the post is Not for information purposes.
It's a political post and as such, will be deleted in due time...
If so, the OP really had most of us! Given that at a great number of those voting on the bill have likely estates in the multi millions it does seem odd that such a low threshold number of one million would be incorporated in any proposed legislation.
From a practical perspective and specifically as it pertains to coins, knowing the heir's cost basis could be difficult. In theory everyone should be tracking cost basis in any assets, but it often doesn't work out that way.
This is where I am at, I am a 3rd generation farmer hoping to get my dad’s farm passed down to me when he passes. He is land “rich” and cash poor. He is worth a lot on paper but his bank account and tax statement would say he is poor. My dad will roll over in his grave if the land we have worked so hard for the last 45 years(let alone my Grandpa who bought the homestead in 1950) is sold just so the money can go to the government. I hope we can get around this somehow so I can keep farming and feeding the world.
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OK, did a little Google searching and can't find anything confirming. Can the OP offer a link for us if this is not in fact an April's Fool joke.
Assuming the later, well played!
NO.
I am a participant of a couple of personal finance-related forums, and they have a rule that you are not allowed to discuss proposed legislation. It makes a lot of sense because all kinds of wacky things get proposed that never come to pass, and discussing it and arguing about it does not add much to the espirit du corps of the community.
I will concern myself with the particular proposal when it passes. In its current form, I give it a 0.01% chance of passing, and a 99.99% chance of being overturned when the administration changes sides. (I just have to stay alive between the two points in time.)
As this relates to coins, which will only be a part of an inherited estate, there could be some unintended ramifications.
Coins are fairly liquid and will most certainly be sold before a business or house on order to pay a tax bill. In the coming decades that could put a lot of coins on the market that might have otherwise stayed in families. I see this as a doubled edged sword. Some real rarities might come to the market that otherwise wouldn’t have been appreciated by the heirs. There could also be a flood of coins to the market that would depress prices until a new normal was found. Both of those situations could be viewed as good or bad, depending on your position, but it would definitely be something to navigate.
Regardless of the tax laws we could see these things happen just because baby boomers are getting older.
What coin collection?
My guess is a lot of wealthy people will go out and create a huge irrevocable life insurance trust (ILIT) with the heir as the trustee. The life insurance policy avoids estate taxation at death if you create the trust properly. The life insurance proceeds can then be used to pay the estate taxes or transfer wealth to your heirs. Problem solved and a big win for the insurance industry.
This type of trust solves the problem of having your life insurance policy being counted as part of your estate. According to Investopedia, Section 2042 of the Internal Revenue Code states that the value of life insurance proceeds insuring your life are included in your gross estate if the proceeds are payable: (1) to your estate, either directly or indirectly, or (2) to named beneficiaries if you possessed any incidents of ownership in the policy at the time of your death. If you want your life insurance proceeds to avoid federal estate taxation, you'll need to transfer ownership of your policy to another person or entity before your death. If you want to retain some control over the life insurance policy and make sure premiums continue to be paid, you can use the life insurance trust.
Another option will be to use a credit shelter A/B trust for married individuals to save a large amount on estate taxes. Basically, the trust allows a husband and wife to split an estate in 2 before passing it on to heirs. For an estate worth $2 million or less it will allow the estate to pass an additional $1 million tax free. Even for estates over $2 million it will still save a considerable amount of estate taxes on the additional million. The catch is you have to set it up before you die so talk to an estate planner.