Easy Street Investing

These taxes are the real “death penalty” …

Martin D. Weiss, Ph.D.

We’ve all heard the famous saying about death and taxes. But what really gets me is when those two inevitabilities converge into inheritance or estate taxes.

How can anyone think it’s reasonable to tax the transfer of a dead person’s wealth?

In fact, I think it’s just one more of the many ways lawmakers are sticking it to responsible savers and investors.

Think about it …

You’ve worked hard and responsibly managed your wealth. And in the process, you probably paid all kinds of taxes — income taxes, capital gains taxes, dividend taxes, property taxes, sales taxes, and more.

Now you die and manage to leave behind something and your designated beneficiaries owe MORE taxes just for receiving it?

I know the standard argument is that “this is a check-and-balance on the rich getting too rich.”

And while I personally reject that argument for a number of reasons, it’s not even true that estate and inheritance taxes only apply to wealthier people.


Take my current home state of Pennsylvania. I recently discovered that we have an inheritance tax of 4.5 percent on EVERYTHING a resident leaves behind!

Actually, that’s not true — there are some exceptions. For example, if your child dies before age 21 you don’t owe anything they leave you.

How magnanimous!

A surviving spouse is no longer required to pay, either. I say “no longer” because as recently as 1995 they owed 6 percent of everything they got.

But let’s say I kick the bucket as you’re reading this. Well, my five-year-old daughter now technically owes 4.5 percent on whatever I leave her — including tangible assets like cars, furniture, antiques, and jewelry.

Oh, and if you happen to leave your wealth to a sibling, the rate goes up to 12 percent … and as high as 15 percent for other people who are not direct descendents or lineal heirs!

To add insult to injury, these inheritance taxes are even higher than Pennsylvania’s standard income tax rate. (The state levies a flat rate of 3.07 percent.)

Plenty of Other States Tax the Dead, Too

All told, 21 states — as well as Washington D.C. — currently levy some type of inheritance or estate tax … including just about every state in the Northeastern U.S.

In some places, you might get an exemption as high as $1 million before you owe anything. But you might also face BOTH an inheritance tax AND a separate estate tax.

Meanwhile, the existence of these taxes — along with the actual rates involved — are continually changing. So good luck keeping track of everything or making a long-term plan!

The only silver lining is that the fiscal cliff deal made permanent a $5 million federal estate tax exemption … and this exemption is indexed for inflation going forward ($5.25 million in 2013).

Of course, that doesn’t have any effect on what you might have to pay your home state.

And if you’re lucky enough to have built an estate worth more than the exempted amount, Uncle Sam still wants a 40 percent cut of everything above and beyond.

Washington calls that fair but I call it robbing graves.

Best wishes,

P.S. I can’t stress it enough: All of this is just more evidence that both federal and state governments are getting more desperate for new sources of money. That’s exactly why I put together my new video — Washington’s War on Your Retirement.

It shows you exactly what new initiatives lawmakers are dreaming up now … and more importantly, it gives you simple protective steps you can start taking right away. If you haven’t yet watched this free video, just click here and it will begin playing automatically


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  • Mark

    “”” How can anyone think it’s reasonable to tax the transfer of a dead person’s wealth? “””

    It’s the recipient being taxed, not the dead. Why shouldn’t the receipt be viewed as a “gain?” If it were a gift, the donor could have given it before death, or reduced the tax liability by structuring it as a trust.

    The biggest examples of the injustice of the so-called “death penality” are family businesses like the Gallo wine properties. But, these people could place their vineyard holdings within a corporation that would survive any individual’s death. They don’t want to do that because they want to maintain the control they have as a private business. Essentially, they want the best of both worlds. The protection of a corporate charter (limiting their personal assets from debtors), while holding vast real estate privately.

    Every form of gain can be framed in emotional arguments. How unjust is it to tax the sweat of one’s brow? Or, the happenstance of luck (game-show winnings)?

    The simplest, least emotional and subjective way to deal with this is: what’s a gain? If you received something you didn’t have, it’s a gain. Whether work, investment, winnings or inheritance.

  • Carolyn Standen

    As an inner circle member do I have access to the report on Social security changes that may be coming??

  • John Machinski

    Just wait until they take everyone’s 401K and replace them with the same IOUs they are putting in the Social Security “Trust Fund.”