Attempts to Minimize Inheritance Tax

October 9, 2018 Nick Esterbauer Estate & Trust, Estate Planning, In the News Tags: , , , , , , 0 Comments

Previous entries in our blog have covered inheritance taxes in the United States and other jurisdictions and President Trump’s proposed elimination of the tax altogether.  Recent news coverage has zeroed in on how the family of the American president has allegedly evaded over half a billion dollars in tax liabilities that should have been paid on the transfer of significant family wealth.

Certain exceptions apply, but inheritance tax (more frequently referred to as “death tax” by President Trump himself) of 40% typically applies to assets of American estates beyond an initial value of $11.18 million.  This means that estates up to this size are exempt from inheritance taxes, while the wealthy engage in complex planning strategies to minimize tax liabilities triggered by death (some of which mirror those used by Canadians in an effort to avoid payment of estate administration taxes on assets administered under a probated will).

Despite Trump’s previous statements that he has independently earned his fortune without reliance on prior family wealth, The New York Times reports that he and his siblings together received over $1 billion from their parents’ estates and that $550 million (55% under the old inheritance tax regime) ought to have been paid in taxes.  However, in 1999-2004, during which years the estates of Fred and Mary Trump were administered, a rate of closer to 5% was paid in taxes.  Whether the tax-minimizing methods used by the Trump family were legitimate or questionable remains unclear:

The line between legal tax avoidance and illegal tax evasion is often murky, and it is constantly being stretched by inventive tax lawyers. There is no shortage of clever tax avoidance tricks that have been blessed by either the courts or the I.R.S. itself. The richest Americans almost never pay anything close to full freight. But tax experts briefed on The Times’s findings said the Trumps appeared to have done more than exploit legal loopholes.

Sometimes, the line between legitimate tax-minimizing planning strategies and outright tax evasion can appear thin.  It is important to avoid improper strategies that put the assets of an estate and their intended distribution at risk, and which may ultimately serve only to complicate and delay the administration of the estate.

Thank you for reading.

Nick Esterbauer

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