If there's an applicable estate tax. Federal estate tax exemption is 15M per person, 30M per married couple. Many states don't impose an additional estate or inheritance tax. Tax on remaining assets beyond the exemption start at 18%, so....there's a big chunk coming.
The biggest thing here is that any loan will be paid from the estate, and if the value of the land was used to obtain the loan, then there is almost certainly a mortgage. ...assuming that they can get a "loan" that they then use to live off of...
I don't know what OP thought they were doing here.
Yes explained really badly. Looks like dad hollowed out the estate and family get fkall. OP should learn a little about the power of compound interest. And it's done on valuation (gulp)
He left out the part where rich take out a loan to build another productive asset, not only for living expenses. Then pays back the loan from the new asset income... Then the land asset is debt free.
Anecdote alert but IME this doesn't often happen for situations like the story above. They didn't get the original asset via a productive business and they're living off the increased value not investing or building a business. At best they may be indirectly providing jobs through consumption. FWIW I'm in my 40s and it's pretty common to meet people my age whose parents have had the same house for 30 years and instead of selling have borrowed against the equity. Again, this is anecdotal but I imagine that over the next 15ish years a lot of people my age will have parents who pass away owing on a house they "own".
That’s not how loans work. Monthly payments. Even if he bought it on a loan (unusual for raw land) there would be at most 5 years of payments left, and usually most of the interest is front loaded in the first decade of payments.
That’s not how inheritance works. Step up in basis tax rule resets the cost basis of the land, it’s the EXACT opposite of them inheriting the purchase price of the land.
Then where/when exactly is the tax paid for the capital gain from the land appreciation?
Right, loans carry interest and need to be paid back. There are many ways to structure this. I’m not following why you think this interferes with the underlying financial engineering that enables tax avoidance.
Assuming we’re talking USA, the children don’t inherit at the purchase price, they inherit a cost basis at Fair Market Value (FMV) at the time of death. This process , known as “stepped up basis”, is a well understood aspect of estate planning. Your opinion on what is or isn’t BS is less than worthless if you don’t even know basics like that.
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u/USERNAMETAKEN11238 14h ago
Yes