My wife claims her parents have become much more extreme conservatives over the last ten years (which completely envelope our relationship).
10 years ago this month, her grandfather died, and her father managed the estate. We weren't married at the time, but based on several clues, I've calculated that more estate tax was paid than the total career after tax earnings of my father-in-law up to that point. That sort of event has to burn, having the gov't take away that kind of cheddar in one moment (and a moment in which you're hurting).
I've always had a problem with estate taxes. I understand them, but the money has already been taxed--probably multiple times (income, then capital gains). Then they tax it again?
Obviously nowadays it is a HUGE estate if it is getting taxed, but it still irks me.
This is no longer precise under current law. It is true that taxes would have been paid for income, some dividends, rents collected, etc. It is also true that taxes would have been paid on monies used to buy investments (stocks, bonds, property, etc.), unless of course they were purchased within a tax sheltered account.
There are no capital gains taxes on any unrealized gains until they are realized. As you said, unless your estate is huge ($5.6MM single, $11MM married), all unrealized gains are transferred to beneficiaries having paid no tax. If you purchase stocks that do not pay a dividend, that can easily be millions of dollars in gains that were never taxed.
With a tax sheltered account, the government realizes the money has never been taxed. As a result, the beneficiaries are responsible for paying the tax on distributions. Would you agree that is fair?
What I see as unfair is that all unrealized gains are not treated the same way as tax sheltered accounts. It seems unfair that millions of dollars of wealth can be transferred without ever paying a tax.
I also disagree with different monies being taxed at different rates (income vs. capital gains for example). My .04% checking account, my rents collected, and bonds are taxed at my income rate (25%), but my qualified dividends are taxed at my capital gain tax rate (0%). Unfair, yet I am taking full advantage. Under current rules, income is for suckers.
I would expect future tax law to modify this by treating rental receipts as a capital gain instead of income. Why? What does Trump do for a living? Also, if you think the estate tax exemption is huge now, just wait. I truly believe it will be 0% tax for 100% of all estates in the next 4 years. It sounds like this is what you want, but I find it anything but fair. I still intend to take full advantage, as I hope you do as well.
Good day to you.