<p>The AMT rate is much higher that most flat-tax systems have proposed. </p>
<p>I am in the 35% incremental AMT tax bracket this year because of reasons that were largely out of my control.</p>
<p>To hit that bracket for regular income tax, my income would have needed to be much much higher than it is.</p>
<p>For the vast majority of high wage earners ($1 mil+, which is who the AMT was originally targeted at, and really down to $500K+), changes in the tax system have ensured that the vast majority of these people pay no AMT. So the AMT, which will hit something like 40 million taxpayers this year, is not actually accomplishing it’s alleged purpose.</p>
<p>Life insurance proceeds are not income taxed, but they are a part of the value of your overall estate unless the insured jumps through certain hoops to create an irrevocable insurance trust and gives all control of the policy to that trustee.</p>
<p>So, if Grandpa has a house that is worth $2MM and has no other assets, he would owe $550k if he dies in January and if no changes are made. If he bought an insurance policy for $1MM, his estate value would now be $3MM and his estate taxes would be $1.1MM (55% of that $2MM) so he still would be short paying the taxes.</p>
<p>I had heard rumors that the Dems have been talking about a $3MM exemption. Are there any current congressional discussions on the estate tax changes?</p>
<p>On that farm example above, I knew a man in his 90s who had no wife or kids left and only wanted to live and die in his home. He had a decent estate so he left his house to his home health care aid AND his housekeeper. First mistake = leaving real estate to two unrelated people. Second mistake = no mention of paying the taxes from the estate. The two women had to sell the house in a down market, they sold it 6-12 months later and for much less than the amount it was valued at for estate taxes. I think the valuation was something like $300k+, taxes $30k+, they sold for $250k or something similar to that. this was over 10 years ago so it is a bit fuzzy, but he thought he was doing a good thing, instead he created a huge headache. Better to have left the two fo them a cash bequest each and let the family (nieces and nephews) figure out the house.</p>
<p>Even if he had left it to one person so she would have a home, she would have had to sell it to pay the estate taxes.</p>
AFAIK, the easiest way around this is just to make the beneficiary of the policy someone other than the estate. Then it completely bypasses the estate.</p>
<p>Somemom, you sound much more versed in these issues than I. Which brings up my point. Estate taxes should not be so complicated that they screw people. They are too complicated for ordinary elderly people to understand. The super rich hire lawyers, create overseas trusts, etc. Many elderly people who do not consider themselves rich and think they will be leaving an estate to their children are the ones who will be screwed over. </p>
<p>I think the 2013 taxes are one reason why I am seeing and hearing so many commercials for buying gold coins and getting free safes with them. The commercials make a point of saying, no paperwork, which of course means no trail. Cash out of some investments, buy gold coins, squirrel them away in your home safe, and they are quietly transferred to your heirs.</p>
<p>My understanding of how the rules are for this year is that a couple can actually pass up to $10 million tax-free to your heirs if you set things up right.</p>
<p>I believe Obama is on record as wanting to roll the exemptions back to 2009 (?) levels, which was $3.5 mill and a top rate of 45%, which is about half-way between what it is now and what it will revert to if nothing happens.</p>
<p>My understanding is that it doesn’t matter who the beneficiary of a life insurance policy is as to whether it is part of the estate for estate tax - it is the owner of the life insurance policy that matters. If the decedent was the owner of the policy, then the proceeds are part of the estate. You can make the beneficiary (or someone else) the owner of the policy and I think that may avoid the proceeds of a life insurance policy being part of the estate.</p>