estate tax/capital gain tax

[krone]

2011 AM Q1

after reviewing the answers, I still don`t understand why should sell shares from revocable trust as it subject to estate tax at his death while the irrevocable is not… there is tax benefit in terms of unrealized capital gain tax for revocable, but how about the estate tax since question ask for minimizing total tax…

many thanks for any thoughts

[Flashback]

Estate tax is tax on the transfer of the estate of a deceased person so it wasn’t relevant. In this question the only query was liquidation of assets immediately thus only capital gains tax matters. You have to distinguish transaction by type (e.g. selling, bequest upon death, etc) to understand which tax form is relevant.

[pakwarrior]

Krone,

I just looked at many earlier posts regarding it. Almost everyone complained about the guideline answer, however, the way I understand it is this: if he does not spend from Revocable trust then because the remaining balance will be higher (than if he spends), the tax amount will be higher as well. The money lost to taxes would be greater in REV than Irrevocable so better have less money in REV.

[krone]

@pakwarrior

Krone,

I just looked at many earlier posts regarding it. Almost everyone complained about the guideline answer, however, the way I understand it is this: if he does not spend from Revocable trust then because the remaining balance will be higher (than if he spends), the tax amount will be higher as well. The money lost to taxes would be greater in REV than Irrevocable so better have less money in REV.

totally agree your understanding… thx a lot!

[krone]

@Flashback

Estate tax is tax on the transfer of the estate of a deceased person so it wasn’t relevant. In this question the only query was liquidation of assets immediately thus only capital gains tax matters. You have to distinguish transaction by type (e.g. selling, bequest upon death, etc) to understand which tax form is relevant.

thx for explanation of estate tax, didn`t realize that until now…

but the realized capital gains tax are the same for both trust if sell immediately as explained by answers… i think only sell at his death, revocable has the deferred capital gain tax benefits as the cost basis would rise to MV at his death…

[Flashback]

@krone

thx for explanation of estate tax, didn`t realize that until now…

but the realized capital gains tax are the same for both trust if sell immediately as explained by answers… i think only sell at his death, revocable has the deferred capital gain tax benefits as the cost basis would rise to MV at his death…

I understood cost base is not the same. In revocable i_s increasing_ and will be equal to market value upon death. Then, I am not expert in English grammar but if something is increasing I translated to myself that is already higher thus less taxable than in irrevocable trust where is low constantly.

[krone]

@Flashback

@krone

thx for explanation of estate tax, didn`t realize that until now…

but the realized capital gains tax are the same for both trust if sell immediately as explained by answers… i think only sell at his death, revocable has the deferred capital gain tax benefits as the cost basis would rise to MV at his death…

I understood cost base is not the same. In revocable i_s increasing_ and will be equal to market value upon death. Then, I am not expert in English grammar but if something is increasing I translated to myself that is already higher thus less taxable than in irrevocable trust where is low constantly.

upon death, there would be zero unrealized capital gain for revocable, so the corresponding tax is zero while in irrevocable, it subject to the portion of unrealized gain tax… not sure whether my understanding is correct, really hate tax…

[Flashback]

I love taxes and derivatives the most. Really enjoy solving those.