Friends:

I confess that I have felt somewhat like a hypocrite lately.  It never really occurred to me before, but some of the strategies that I advise be instituted as part of my legal counsel actually conflict with my own belief system and sense of right.

Benjamin Franklin said that the only things that are certain are death and taxes.  Amazingly, many Americans spend an inordinate amount of time trying to defeat the latter.  Whether it’s through creative accounting or considered planning, tax avoidance is a huge motivator; the idea that the government should receive less so that the individual can take home more is a widely-held sentiment.

As such, in my firm’s practice, much of our advice is founded in methods to avoid the payment of estate taxes upon the death of the taxpayer.  For as you are probably aware, estate planning has two potential focuses—one is legacy planning and the other is tax avoidance.

In some of my past postings I have argued that more government funding needs to be earmarked for education and the judicial system.  But where is that funding going to come from???  It isn’t like the government is sending around a collection plate and we are all given the option of making a donation.  I don’t recall watching a Telethon on Channel 13 or seeing Governor Brown offering to wash my car for five dollars.  So where will the money be coming from?

From taxes!  Right!  So on one hand I am arguing that we need more government money for education because too many important school programs are being cut and teachers fired and on the other hand I am being paid to advise taxpayers on how to not pay those taxes. 

I am not an expert on taxes but I can certainly conceptualize the difference between tax and estate taxes because there is a difference.  The idea of paying estate taxes is simply abhorrent to me and I am not too shy to admit it.  Many of the others forms of taxes are understandable—we may not like them but we understand them.  We pay taxes on the money we earn and as money changes hands, the government is there with its hand out.   We pay taxes for the privilege to do business in the country, state, city, neighborhood, and whatever other geographic designation that may lay claim to a right to receive payment.  We pay taxes for the privilege to live in the country and state and to be provided with the opportunity to live and work in this country and state.  So far, so good, I understand it.  But what is the basis for the estate tax again?

Do taxpayers pay for the privilege of dying in the country and state?  I doubt that anyone would consider dying a privilege.  And they still have to pay taxes even if they die in another country or state.  So they pay taxes for dying while owning property and having assets in the country and state, even though they may die on the moon, in a hot-air balloon over the state line, or 20,000 leagues below the sea.  I guess if the country/state had to do anything with the body, provide a burial location, or conducted the funeral… right, that doesn’t happen either.

On top of that, examine what is being taxed.  The assets that the taxpayer owned at his/her death were acquired at some point using moneys that were earned while he/she was alive—but didn’t the taxpayer pay taxes when the money was earned the first time?  And won’t taxes be paid when the real property or investments are sold by the heirs?  It just seems like estate taxes add insult to injury.  You just died and your Uncle Sam wants his portion of the inheritance.  The Uncle Sam who didn’t attend the funeral, didn’t come to visit you in the hospital, and didn’t read your obituary in the newspaper and send a condolence card to your widow.  Yes, THAT Uncle Sam wants his piece of the pie.

I understand that as of today the estate tax is not going to be paid by everyone; only those with more than five million dollars who die this year could potentially pay estate taxes.  But if our government doesn’t do anything dramatic, as of 2013, the number will be reduced and anyone dying with more than One Million Dollars (insert Dr. Evil sneer here) could be subject to estate taxes.  One Million Dollars, in the grand scheme of things, may not be a whole lot, especially for those of us who own real property in Los Angeles.  Factor in the fair market value of our homes and that One Million Dollars is within spitting distance.

And yet—if some of those rich old codgers from Texas who made their money in oil and have far too many zeroes at the end of their balance sheets happen to die, then that money could seriously go to some worthwhile government programs, right?

Ahh, I am conflicted!!!

What about you?

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