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The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

nytimes.com

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Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#11

Post by steveBK123 »

prepend wrote: post #8
lbotos wrote: post #5

Earlier quoted context omitted.

Sure. But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $) If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage Edit: Let’s make an example. You have a 10MM portfolio. You wanna buy a thing for a million dollars. You sell like 1.3MM to cover tax. Or you…

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

Right, but to my understanding there are related games that are played with trusts for example such that the loan passes onto the next generation too.

To make matters worse, theres a concept called "step up in basis" such that if structured correctly, the inheritors can pretend the cost basis of their portfolio is the current market value. So the parents shield the gains from taxes in life, pass on the portfolio, and the kids reset the tax obligation to zero.

"The concept of step-up in basis is actually quite simple. A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. This is true even if the beneficiary of the asset so transferred is a spouse of the Decedent." https://www.axley.com/publication_article/step-up-in-basis/

Not an expert, but having heard of it before & doing some research.. I'm sure there are more details, but if mere mortals like me understand it, I am sure the tax lawyers have even more esoteric methods now.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#12

Post by [deleted] »

prepend wrote: post #8
lbotos wrote: post #5

Earlier quoted context omitted.

Sure. But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $) If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage Edit: Let’s make an example. You have a 10MM portfolio. You wanna buy a thing for a million dollars. You sell like 1.3MM to cover tax. Or you…

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

[deleted]

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#13

Post by SnowHill9902 »

prepend wrote: post #8
lbotos wrote: post #5

Earlier quoted context omitted.

Sure. But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $) If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage Edit: Let’s make an example. You have a 10MM portfolio. You wanna buy a thing for a million dollars. You sell like 1.3MM to cover tax. Or you…

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

Buy, borrow, die.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#14

Post by lbotos »

prepend wrote: post #8
lbotos wrote: post #5

Earlier quoted context omitted.

Sure. But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $) If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage Edit: Let’s make an example. You have a 10MM portfolio. You wanna buy a thing for a million dollars. You sell like 1.3MM to cover tax. Or you…

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

Depending on what assets you have you may be looking at short term vs long term cap gains.

This strategy could cut your tax burden if you hold short term assets into long term category.

You could also strategically take losses as well which could also reduce tax burden.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#15

Post by Retric »

prepend wrote: post #8
lbotos wrote: post #5

Earlier quoted context omitted.

Sure. But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $) If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage Edit: Let’s make an example. You have a 10MM portfolio. You wanna buy a thing for a million dollars. You sell like 1.3MM to cover tax. Or you…

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

No, because you’re gaining interest on your unpaid taxes.

Suppose you have exactly 1 million and must pay 1 million in taxes on year 0. That means you’re left with 0$.

Now suppose you can defer exactly 1 year, so you owe 1 million + taxes on your interest in year 1. Taxes on that interest are 0$. That’s equivalent to lowering your tax bill even if nominally you eventually pay more.

But what happens if you can avoid paying taxes for say 10 years or 100? Delay long enough and for all practical purposes the actual tax disappears.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#16

Post by nickpp »

Matheus28 wrote: post #9
prepend wrote: post #8

Earlier quoted context omitted.

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes. Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

No. Once you die and transfer the assets to your children, the cost basis gets reset.

But isn’t the inheritance tax (for everything over $12 mil until 2026) even larger than the capital gains tax? And it applies to the whole value, not only the increase in value.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#17

Post by wslh »

I think we should understand that new generations are currently shaping the future in general. See [1] and the same could be applied worldwide: if it is politics or finances.

IMHO the issue in the context of wealth is if would serve a purpose that benefit some part of the society or not. A lost of opportunities are lost when you don't see beyond your nose. Indeed is the human history but since these generations are more linked to global issues we will see if it is a naïveté or a force of change.

[1] https://news.ycombinator.com/item?id=35937862

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#18

Post by nnvvhh »

prepend wrote: post #3

> Mr. Pearl noted that people with only a couple of million can use “securities-based loans,” borrowing low-cost funds from banks using the value of a given investment portfolio as collateral. “You just loan yourself money,” he explained, and in many if not most cases, the portfolio’s rate of return exceeds the rate of interest on the loan. It seems like a step is missing here. Wouldn’t the borrower have to sell part…

Another aspect of this arrangement: you don't pay federal income tax on money you receive as a loan in the US. The money does not count as income because of the matching obligation to pay it back.

Re: The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

#20

Post by credit_guy »

pavlov wrote: post #6

Meanwhile the estate tax in the US only applies to inheritances larger than $12.9 million. People with that kind of wealth also know how to start planning early to avoid the tax, so the tax is practically ineffectual. A fairer inheritance tax could go a long way to fixing the worsening wealth gap in America.

$12.9 is per estate, not per heir. If someone has one spouse and 3 kids and also leaves by will some stuff to 6 other relatives, then the exemption is split between the 10. Each benefits on average from an exemption of $1.3 MM. At the highest tax bracket, they get a one time tax deduction of about half a million.

When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference.

If you want to get rid of the estate tax exemption, you don't hit the Bezoses and the Zuckerbergs of the world, you hit the middle class.

And by the way, you don't even need to move a finger to cut that exemption in half. It will do that in 2026. If you so desire, you can write to your representative to tell them you'd be very upset if they vote for an extension of the current levels of the estate tax exemption.

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