The Tax System
Retirement Plans
Estate Tax Reduction Choices
Summary of State Taxes
| We
pay all kinds of Federal and state taxes during our lives, including
income taxes, sales taxes, property taxes, etc. After we pay tax,
we accumulate our capital - our principal. At death, federal and state
governments assess a tax on our principal. The government considers
many things you may not expect as your principal for this purpose.
For example, the death benefit of insurance, property such as a house,
which you gave to children during life but which you continued to
use, and retirement plans are all potentially taxed at your death.
The federal estate tax is generally imposed at a rate of 41% of every
dollar over $1,000,000 of wealth (our principal) transferred by gift
or at death. Of every dollar we earn, in excess of 69% is potentially
paid to federal and state governments in one form of tax or another.
The federal wealth transfer tax system is composed of a gift tax and an estate tax. The purpose of this wealth transfer tax system is to redistribute wealth to the general population through government programs. Subject to several exceptions, you cannot avoid the estate tax on your death by gifting property away during your life. All taxable gifts (those in excess of the annual exclusion) are added back into your taxable estate for purposes of calculating a tax on the total wealth transferred by you during life and at death, with a credit applied for any gift taxes paid. Gifts are not taxable if they meet certain criteria. Most people are aware of one gift tax exception - the $11,000 per year per donee exclusion - but there are several others and many ways to minimize gift and estate taxes. Once you identify the egregious nature of the tax system, you may seek to avoid it. Doing so involves ways of reducing income and other life-time taxes and tax-advantaged shifting of wealth to children and grandchildren, often while securing your lifetime financial security and cash flow. Through the use of various tax exemptions and planning opportunities, which are often wasted, tremendous tax savings and wealth preservation can be achieved over your generation and, with proper planing, future generations. Justice Louis D. Brandeis of the United States Supreme Court said it this way:
If, I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical, and suitable method of tax avoidance and I am performing a useful social service by doing so. For my tax evasion, I should be punished. For my tax avoidance, I should be commended. The tragedy of life today is that so few people know that the free bridge even exists." |
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The Tax System | Retirement Plans | Estate Tax Reduction Choices | Summary of State Taxes |
