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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Jon Stept who wrote (15063)7/17/2000 2:59:00 AM
From: djia101362  Read Replies (3) of 15132
 
John-

Let me try and help answer this question about the estate tax. I'll give you an example of how the estate tax works and you tell me if you think it's fair.

Let's say son is the only child and he has one surving parent left, let's call him P. In 1999, the only asset P has is $4M in INTC stock at of cost of $1M, meaning he has a built in gain of $3M.

On 12/31/99, P sells all $4M of the INTC stock. He pays income tax of $600K (20% tax rate on $3M gain) leaving him w/ $3.4M in cash.

On 7/1/00, P dies with $3.4M in his estate and it all goes to son. After Uncle Sam slaps on the estate tax of $1.5M ((3.4M - 675K) x 55%), son is left w/ $1.9M. The $4M P had just 8 months ago is now $1.9M, and Uncle Sam got over 50% of it.

Let's assume P did not sell the INTC stock and died, in this case the estate tax would be $1.8M, and son would be left w/ $2.2M. Either way, Uncle Sam gets a big chunk.

I don't like the sound of it and I think most people w/ any kind of self-created wealth feel the same way. For those that do not exceed the unified credit of $675K, it really doesn't matter.

This is just a very simplified example and w/ proper estate planning, some of the tax could be avoided. But w/out proper planning, this example is very real and the outcome would be just as I stated.
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