In an era of surging home and stock values, U.S. family wealth has soared. The trillions of dollars going to heirs will largely reinforce inequality.
Heirs increasingly don’t need to wait for the passing of elders to directly benefit from family money, a result of the bursting popularity of “giving while living” — including property purchases, repeated tax-free cash transfers of estate money, and more — providing millions a head start.
The wealthiest 10 percent of households will be giving and receiving a majority of the riches. Within that range, the top 1 percent — which holds about as much wealth as the bottom 90 percent, and is predominantly white — will dictate the broadest share of the money flow. The more diverse bottom 50 percent of households will account for only 8 percent of the transfers.
The average price of a U.S. house has risen about 500 percent since 1983
The stock market, as measured by the benchmark S&P 500 index, is up by more than 2,800 percent since the beginning of 1983
Of course we do not know what the future portends but in the past stocks trumped real estate.
Property owners pay taxes annually on their home plus maintenance costs. Stocks have neither of those costs. Taxes are paid only of the stock is sold.
Hence the decades long drumbeat about repealing “death taxes”, and the push to give favorable tax treatment to income from financial speculation, vs income from productive work…because “supply side” ideology dictates the most loot be concentrated in the fewest hands.
With houses you can buy and bump up again and again without paying taxes. You can sell and if your profit is below a fairly high threshold you can avoid taxes using the “one time exclusion”, which you can use over and over, every two years.Then when you die you can leave it to someone (anyone!) and they pay no taxes, and inherit it at the new, much higher “cost basis.”
The value of the stocks are reported at death on Form 706. The heirs inherit the stocks at this date-of-death cost basis, not at the original price of the stocks.
I have a long time tax client who has reliably bought and sold a new residence every 2 to 3 years since that law went into effect in the late 1990s. Fortunately for my sanity, he has a PO box which has remained constant over that time.
The one thing to remember in this litany of tax free sales is that there are still transaction costs in the neighborhood of 6%-8% on the round trip. Those, along with property taxes and the cost of moving, eat into the financial profits. But I will say that the system can work.
Personally, I find buying good stocks with the goal of holding them for decades to be much easier.
Preferential tax treatment of stocks at death does not do the owner any tangible good since he is dead. Preferential tax treatment of real estate pays off while you are still alive to enjoy it
And I do not see anything surprising about a few people having most of the wealth. Making lots of money is probably a talent. Like being a great opera singer or a great basketball player.
Admittedly for any of those with lots of talent a little luck, being in the right place at the right time and hard work play a big part in their success
Inherited wealth is a different matter
After all the swapping out of corporations from the index and the bankruptcies in the overall economy how would you not expect a select group of stocks not to out preform? The stat is meaningless. Owning the index though would not have been. The 2800% is not adjusted for inflation.
Buy Berkshire Hathaway. It doesn’t pay a dividend, so you pay no taxes while holding it. And it gets the same stepped-up cost basis at death when transferred to your heirs.
From 1983 to today, BRK appreciated has appreciated 53,125% (i.e., a $10,000 investment is now worth $5.3 MM.)
And the 6 percent realtor fee is assessed against the entire sale price and not just the gain. Plus the annual tax, utility and repair and management bills rise with the value of the house. It was easier and more profitable for me to live modestly and let my stocks grow.
In general, this is sound advice. The only small issue is deciding which stock will return 50,000+% between 2023 and 2063 AND never choose to suddenly spring a dividend on you. For example, I attempted to do this with a favorite stock of mine, and while it is doing more than okay as far as return goes, a decade or so ago it suddenly decided to pay dividends, and it keeps increasing those dividends every year, which causes guaranteed income every year, even in years where it would be very advantageous to have a lower AGI.
I try not to jump in on conversations across the board realms, but this one got me going…
Making lots of money is probably a talent. Like being a great opera singer or a great basketball player.
Admittedly for any of those with lots of talent a little luck, being in the right place at the right time and hard work play a big part in their success
I seriously do NOT believe that making a lot of money (as in grotesquely a lot) is related to talent or hard work. It is related to being a good liar, a good manipulator, and a lack of human empathy/being a sociopath. History shows us that the largest fortunes were built on destroying other people, companies, environments, locations, etc, etc. Look at the ‘barons’ of the 18th and 19th century, look at the banking/investment sector that led mortgage backed securities collapse, look at anti-trust fights against ANY large corporation now. The only way to get THAT much money, hoarded away, is from being a %!@#.
Hardwork goes a long way, but those people are handing off hundreds of thousand$, or in some cases million$…but those are NOT the 1% with all the money.
Also, a second way that the super rich get super rich, is that it was handed to them. There are so many people in the 1% now, that are claiming to be great business people, but they got their starts with daddy’s (or family) money.
This hard work pays off line is just to keep us distracted and blaming ourselves for not being super rich. The game is stacked hard against hard workers.
I think Buffett and most of these guys add a lot of employment and give a lot to charity. Do they put their thumb on the scale? Do they work hard? all around yep.
Is the momentum earned for years on end? Mixed review there.
So…where did Buffett do the hard work? He is probably the nicest of the 1%, but I’d put him in the category of got lucky and was smart enough to keep it up. But hard work?
I have two ‘occupations’ at this time…an IT project manager and a budding farmer/homebrewer…one of those is a WHOLE lot more “hardwork” than the other.
OH!..and he was born to a congressman/businessman and got a paid way into prestigious schools. Tell me how one child of three, to a divorced mother, who’s family got gifts from a CHURCH on xmas…could EVER do this…
Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as an investment salesman; from 1954 to 1956 at Graham-Newman Corp. as a securities analyst; from 1956 to 1969 at Buffett Partnership, Ltd. as a general partner; and from 1970 as [chairman] and CEO of [Berkshire Hathaway Inc] In 1951,[32] Buffett discovered that Graham was on the board of GEICO insurance. Taking a train to Washington, D.C., on a Saturday, he knocked on the door of GEICO’s headquarters until a janitor admitted him. There he met Lorimer Davidson, GEICO’s vice president, and the two discussed the insurance business for hours.
I have read of studies that show the majority of CEOs are sociopaths. Does seem that getting ahead requires a willingness to bully, berate, and stab people in the back.
Radio Shack story: The RS store manager’s bonus was based on the profitability of the store. The store in West Main Mall, in Kalamazoo was impossible to make a profit in, because the mall was largely abandoned, and foot traffic was nearly non-existent. That made it very difficult to persuade anyone to run the store, because RS manager base pay was barely better than minimum wage. RS had a lot of poorly located, unprofitable stores, so developed a “guaranteed minimum compensation” plan. The deal was that the manager was guaranteed to make no less than $17,000/year (remember, this was the mid 80s) The manager would work under the normal compensation plan through the fiscal year and, if their total compensation, base pay plus bonus, was below $17,000, the company would send the manager a check to make up the difference.
Barb was induced to take the West Main Mall store, by assurances of the guaranteed minimum compensation plan. During that fiscal year, the district got a new DM. At the end of the f/y, Barb was looking for about a $3,000 payout under the guarantee. The company stiffed her. I don’t know if it was the previous DM never putting in the paperwork to enroll her in the guaranteed compensation plan, or the new DM refusing to honor it, or corporate refusing to honor it. They needed someone to run that store for a year, so someone lied to Barb to get her to do it. She had no recourse. She couldn’t take back her year of work. She didn’t get anything in writing from the previous DM saying she was entitled to the money. And she couldn’t sue because her husband was also an RS manager, and she feared reprisal being taken on her husband.
All hail the “JCs”, those deserving of all the money.
/sarcasm
“Even at the young age of 25, Buffett was ready to strike out on his own. Buffett returned to his hometown, and with just $105,000 in capital from family and friends, he set up his first fund, Buffett Partnership Ltd.
Limited partners received a 4% preferred return (hurdle), with Buffett taking 50% of gains and 25% of losses.”
Other’s did the work of this foundation. Running meetings and taking 50% of profits is not hard work.
