Estate Tax Common Sense

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Scott Roberts, Director of Estate Planning


The Estate Tax is a tax on the transfer of assets to heirs upon one’s death, or during life when it is called the Gift Tax.  With a lifetime exemption of $5.45 million, or $10.9 million per married couple, less than 1% of the population will ever pay it.  And yet the tax can still be divisive as some label it the “death tax” and both sides passionately voice their position.  On one side are the wealthy (and those who plan to be wealthy) who claim it is an unfair double taxation on assets accumulated through earnings that have already been taxed.

Plus, it is anathema to our American values since it acts as a disincentive to entrepreneurship.  On the other side are those who point out that the tax is needed to prevent an unfair advantage to the wealthy who can pass on assets with built-in gains that are never taxed because of the step-up in tax basis at death.  Plus, they argue, some reallocation of wealth is needed to prevent an ever-increasing wealth divide, and friction, between the haves and have-nots.


Without delving into the philosophical and macroeconomic arguments for and against wealth redistribution, there are some truths to be highlighted.  It is true that the estate tax, in many situations, does represent a double taxation on assets that have already been taxed as income when earned.  Of course, it is also true that built-in gains, some very large, are never taxed due to the step-up in basis at death.  But if there were a way to address the main arguments of each side on this issue, doesn’t it make sense to explore?


Often, the simplest solution is the best and we need look no farther than to our neighbors up north who have already addressed this very situation.  Canada’s estate tax is quite simple: when you die, the transfer of your assets to your heirs (except a spouse) is treated as a deemed sale and any accrued gains are taxed at that time.  This approach represents the very epitome of simplicity, effectively dealing with the main arguments of both sides.  By taking away the step-up in tax basis and treating the transfer like a sale, the wealthy aren’t able to avoid taxation on built-in gains. And if only the built-in gains are taxed, then there is no double taxation on the wealthy.  It begs the question: how have we not done this already?


Part of the answer to that question is that other factors need to be considered also.  For example, should there be an exemption for very small estates with built-in gains?  Should the rate be the same as the long-term capital gain tax rate, or should it be higher (or lower)?  Would such a change have a net negative effect on government revenues?  All good questions, among others, that can be addressed in another article.  But, at the end of the day, why do we keep tinkering with something anachronistic and broken?  Can’t we just answer the implementation questions and formulate a better way, incorporating the simplicity of a deemed sale?  I believe we can.


This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.  LPL Financial does not provide legal advice or services.

facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.


Charitable Giving Strategies in a High-Income Year

Tom Fridrich, JD, CLUⓇ, ChFCⓇ, Senior Wealth Planner  The end of the year offers an ideal opportunity to look both forward and back — reflecting on recent achievements, while setting goals for the upcoming months. For many of my clients, it’s also a time to review their finances and i …

Let’s Talk About Midterm Elections and Your Investments

This week was midterm elections and we’ve had many questions about what it all could mean, which we’ll tackle in today’s blog. We consider it a great honor to vote, and while we may not know the final results of the election for days (or even months), what we do know is the election will …

3 Nontraditional Ways to Give That Still Qualify for a Tax Deduction

Kevin Oleszewski, Senior Wealth Planner ‘Tis the season to give. In fact, 37% of charitable giving occurs during the last quarter of the year — 20% of it in December alone, according to a survey conducted by the Blackbaud Institute. And while the holidays are traditionally a time to reflect …

Considering Tax Loss Harvesting? What You Need to Know First

Kevin Oleszewski, CFP® Senior Wealth Planner As the tax year draws to a close, many high-income investors will look to reposition their portfolios to intentionally generate losses as a way to offset gains — an investment strategy known as tax loss harvesting.
1 2 3 99 100 101

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation