Estate taxes and the top 1 percent by net worth
Of course, you've already realized that some of that is that smaller estates are more common than larger estates.  But it seems unlikely that there are four times as many estates between $10 and $11 million as above that range.   People who expect to die with an estate subject to inheritance tax tend to prepare.   I don't know how common it is, but if the surviving member of a couple remarries, then the new spouse gets a separate exemption.  And of course spouses inherit from spouses without tax.  In theory this could last indefinitely.  In practice, it is less likely.  But if a married couple has $20 million, the first spouse could leave $15 million to the second and $5 million to other heirs.  The second spouse could leave $10 million to a third spouse (after remarrying) and another $5 million to children with the first spouse.  All without triggering the estate tax.   People can put some of their estate into a trust.  This can allow the heirs to continue to control the money while not paying inheritance tax.  Supposedly Ford (of Ford Motor Company) took that route.   Another common strategy is to give the maximum without gift tax each year.  That's at least $14k per donor and recipient per year.  So a married couple with two kids can transfer $56k per year.  Plus $56k for the kids' spouses.  And if there are four grandchildren, that's another $112k.  Great-grandchildren count too.  That's more than a million every five years.  So given ten years to prepare, parents can transfer $2 million out of the estate and to the heirs without tax.   Consider the case of two wealthy siblings.  They've each maxed out their gifts to their own heirs.  So they agree to max out their gifts to their sibling's heirs.  This effectively doubles the transfer amount without tax implication.   Also realize that they can pretransfer assets at the current market rate.  So if a rich person has an asset that is currently undervalued, it may make sense to transfer it immediately as a gift.  This will use up some of the estate exemption.  But if you're going to transfer the asset eventually, you might as well do so when the value is optimal for your purpose.   These are just the easy things to do.  If someone wants, they can do more complicated things that make it harder for the IRS to track value.   For example, the Bezos family invested in Amazon.com when Jeff Bezos was starting it.  As a result, his company could survive capital losses that another company might not.  The effect of this was to make him fabulously rich and his parents richer than they were.  But he won't pay inheritance tax until his parents actually transfer the estate to him (and I believe they actually put it in a charitable trust).  If his company had failed instead, he still would have been supported by the capital provided by his parents while it was open (e.g. his salary).  But he wouldn't have paid inheritance tax on it.   There are other examples of the same pattern:  Fred Smith of FedEx; Donald Trump; Bill Gates of Microsoft; etc.  The prime value of the estate was not in its transfer, but in working together while alive or through a family trust.  The child's company became much more valuable as a result of a parent's wealth.  And in two of those examples, the child was so successful that the parent became richer as a result.  So the parent's estate does count.  Meanwhile, another company might fail, leaving the estate below the threshold despite a great deal of parental support.   And those aren't even fiddles.  Those children started real companies and offered their parents real investment opportunities.  A family that wants to do so can do a lot more with arrangements.  Of course, the IRS may be looking for some of them.   The point being that the estate might be more than $11 million earlier, but the parents can find ways to reduce it below the inheritance tax exemption by the time that they die. There are two main reasons for the difference between these two numbers: While there are a few people that are wildly wealthy, most of the people with more than 10 million have between 10-50 million dollars.  These people shield most of their estate and in the end the tax only effects a small portion of even the wealthy. There are two key reasons: Consider a family of four, two kids and two adults, that has a net worth of $20 million. Each of these four people live in a top 1% household. But any of those four people can die, and their estate will not pay any estate tax. Both kids and one spouse can die, and still no estate tax will be paid. Only when the last spouse dies would there be any estate tax. Also, consider a person who dies but whose assets do not flow into their estate. For example, their assets could be held in an inter-vivos trust. People with higher net worths are much more likely to use trusts to avoid or minimize estate taxes. Data is a funny thing. There are many different ways of constructing data sets. Keep in mind, the cite you linked is fine, I follow this kind of site when I am data mining. They got their data from the Government, and there's no reason to doubt its validity. Keep in mind, it's a survey. They extrapolate from a survey of a small population - In the 2016 survey, 6,254 families were interviewed, and in the 2013   survey, 6,026 were interviewed. 1) Let's set that aside, and look at the numbers as if they were gospel. $10.37M net worth to be top 1%. That's people at all different ages, and not the wealth cutoff for those dying, else the estate tax would hit closer to the 1%. Given the limited data set, I'd only hypothesize, if we graphed the age (along the bottom, X axis) vs number of people, the curve would peek in mid to late 60's, as people retire. With 20 years for the couple to spend and gift, it's not tough to imagine that by the time they pass away, the taxable estate $11M couple falls to just .2%.  2) When the estate tax impacted estates over just $600K, and my daughter was born, we set up a trust. Out net worth was barely positive, but insurance alone would have created enough wealth to have our orphaned child be subject to the tax of our estate before she received a dime. We also used the trust to fund her college. As a completed gift, had we made some bad decisions and lost it all, at least that money would be protected. Keep in mind, there are different flavors of trusts, but it's safe to say that in a survey to collect data, the million dollar+ trusts are considered family wealth. Not tough to imagine a good fraction of those families over $10M have a nice chunk already protected this way.  3) Last - For any illiquid assets, there's a discount that gets applied, typically 30%. I own a ranch, and want to start gifting it to the kids, the process involves creating stock, with restrictions, as a way to transfer the fractions required to gift the $14K/yr per person combination. (That is, a couple can gift 14x4 = $56K to a child with a spouse. 4 kids, all married, and the gifting is $224K/yr, $320K at full valuation. Again, these gifts may be to irrevocable trusts, and still thought of as their wealth.
"The scenario you mention regarding capital gains is pretty much the core of the issue. Here's a run-down from PolitiFact.com that explains it a bit. It's important to focus on it being the tax rate, not the tax amount (which I think you get, but I want to reinforce that for other readers).  Basically, most of Buffett's income comes from capital gains and   dividends, income from investments he makes with the money he already   has. Income earned by buying and selling stocks or from stock   dividends is generally taxed at 15 percent, the rate for long-term   capital gains and qualified dividends. Buffett also mentioned that some of the ""mega-rich"" are hedge fund   managers ""who earn billions from our daily labors but are allowed to   classify our income as 'carried interest,' thereby getting a bargain   15 percent tax rate."" We don't know the taxes paid by Buffett's secretary, who was mentioned   by Obama but not by Buffett. Buffet's secretary would have to make a   high salary, or else typical deductions (such as the child tax credit)   would offset taxes owed. Let's say the secretary is a particularly   well-compensated executive assistant, making adjusted income more than   $83,600 in income. (Yes, that sounds like a lot to us, too, but   remember: We're talking about the secretary to one of the richest   people in the world.) In that case, marginal tax rates of 28 percent   would apply. Then, there would be payroll taxes of 6.25 percent on the   first $106,800, money that goes to Social Security, and another 1.45   percent on all income, which goes to Medicare. The secretary’s overall   tax rate would be lower than 28 percent, since not all the income   would be taxed at that rate, only the income above $83,600. Buffett, meanwhile, would pay very little, if anything, in payroll   taxes. In the New York Times op-ed, Buffett said he paid 17.4 percent   in taxes. Thinking of the secretary, it gets a little complicated,   given how the tax brackets work, but basically, people who make   between $100,000 and $200,000 are paying around 20 percent in federal   taxes, including payroll and income taxes, according to an analysis   from the nonpartisan Tax Policy Center. So in this case, the secretary's rate is higher because so much of   Buffett's income comes from investments and is taxed at the lower   capital gains rate. Here's Buffet's original Op-Ed in the NYT for those of you that aren't familiar." It is the most incorrect piece of the article, but it's not the lack of taxes that have allowed the wealthy to do better than the rest of us. You can argue for the seizure of their assets by the gov't - through taxes - as a way to take it from them. But the Fed's monetary policies are far more severe in how they impact inequality. Here's how the CBO says the top 1% get their income:     Source|% from source :--------|---------: Cash Wages and Salaries|33.4% Business Income|23.2% Capital Gains|19.1% Capital Income|11.2% Corporate Tax Borne by Capital|7.3% Other Income|3.2% Employer's Share of Payroll Taxes|0.9% Employee's Contributions to Deferred Compensation Plans|0.7% Employer's Contributions to Health Insurance|0.5% "Well I'd say they are expected to pay much more than what you describe. What you've described is called ""flat"" tax and is widely considered unacceptable (meaning the rich wouldn't pay enough). Today, as codified in progressive tax tables, the rich are certainly *expected* to pay much *more* than a flat tax as you describe. Beyond the natural scaling you get with a percentage, the percentage itself goes up as you make more." "This is the best tl;dr I could make, [original](https://www.theguardian.com/business/2017/jul/15/top-1-of-households-in-uk-fully-recovered-from-financial-crisis) reduced by 89%. (I'm a bot) ***** &gt; New research from the Resolution Foundation showed that households with incomes of &amp;pound;275,000 or more quickly recovered from the impact of the deep recession and have seen their share of national income return to the level seen before the global banking system froze up in the summer of 2007.  &gt; &amp;quot;Adam Corlett, senior economic analyst at the Resolution Foundation, said:&amp;quot;The incomes of the top 1% took a short, sharp hit following the financial crisis.  &gt; The share of national disposable income for the richest 1% of households rose steadily after Margaret Thatcher became prime minister in 1979 and reached a peak of 8.5% on the eve of the financial crisis.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6njstj/top_1_of_households_in_uk_fully_recovered_from/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~167774 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **income**^#1 **year**^#2 **election**^#3 **Foundation**^#4 **standards**^#5" "This is the best tl;dr I could make, [original](https://qz.com/994323/economists-say-the-ultra-wealthy-dodging-taxes-far-more-than-we-think/) reduced by 74%. (I'm a bot) ***** &gt; Economists Annette Alstads&amp;aelig;ter, Niels Johannesen, and Gabriel Zucman have taken the data from the two leaks and combined them with unusually detailed income and wealth records in Norway, Sweden, and Denmark to estimate the size and scope of tax evasion.  &gt; The economists&amp;#039; surprising finding: The top.01% of the wealthy in these countries evades about 30% of their respective personal income and taxes, compared to the average evasion rate of 3%. These findings complicate two arguments commonly made by defenders of the status quo: One, that tax evasion is a relatively uncommon practice among the very wealthy highlighted by extreme cases, and two, that tax evasion among lower-income earners-working under the table or failing to declare tips, for example-is more pernicious than the use of offshore banks.  &gt; The researchers think that the results will likely show more tax evasion among the ultra-wealthy in more unequal countries, like the United States.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6etje2/economists_say_panama_papers_and_swiss_leaks_show/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~134702 tl;drs so far."") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **tax**^#1 **evasion**^#2 **wealthy**^#3 **wealth**^#4 **super**^#5" &gt; 73% of Americans were in the ‘top 20%’ for at least a year  Well, sure.  [The top 20% currently begins at $92,000](https://en.wikipedia.org/wiki/Income_in_the_United_States).  All an American needs to do to qualify for that 73% is sell their house with ~50% equity at some point in their life since the IRS considers that income.  Great logic of this article: liquidate your primary investment and \*poof\* you're wealthy.  Even [the authors of the study cited in this article say](http://news.cornell.edu/stories/2015/01/hirschl-research-finds-many-join-1-percent-few-stay-long):  *“It would be misguided to presume that top-level income attainment is solely a function of hard work, diligence and equality of opportunity,” they write. “A more nuanced interpretation includes the proposition that access to top-level income is influenced by historic patterns of race and class inequality.”* "Securities and ETFs are also subjected to Estate Tax.  Some ways: Draft a ""Transfer on Death"" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker.  Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death.  Create a Trust, that survives even after death of an individual.  P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings.  P.S.2 Above suggestions are only applicable to nonresident alien of the US." Maryland is one of only two states (as of the writing of that article) that collects both inheritance tax and estate tax. These are two different issues, and it's important to differentiate between them sufficiently. I can't provide you a definitive answer, so consult a tax professional in Maryland for specific details to make sure you don't run afoul of tax authorities. This blog has a nice summary of the differences, as of 2012: The estate tax is assessable if more than one million dollars passes at death.  The total dollar value of the property determines whether there is an estate tax.  The inheritance tax is not dependent upon the value of the estate, as even very small estates can have inheritance tax imposed.  Inheritance tax is assessed on property given to a person who is further removed in relationship than a sibling.  Thus, for example, a 10% tax will be assessed on property passing to a cousin, niece, nephew or friend.  Another section of the page states, as an example: If you give someone $10,000 in cash, the inheritance tax will simply reduce the amount inherited – in this case to $9,000. There are several other exemptions to the inheritance tax in addition to the immediate family exception discussed above: Property that passes from a decedent to or for the use of a grandparent, parent, spouse, child or other lineal descendant, spouse of a child or other lineal descendant, stepparent, stepchild, brother or sister of the decedent, or a corporation if all of its stockholders consist of the surviving spouse, parents, stepparents, stepchildren, brothers, sisters, and lineal descendants of the decedent and spouses of the lineal descendants. Putting this information together makes me think that the inheritance wouldn't be taxable in your case because it's a cash inheritance from an immediate family member, so it qualifies for one of the exemptions. Since I'm not a tax professional, however, I can't say that for sure. Hopefully these pages will give you enough of a foundation for when you talk to a professional. I know that if you make more, you pay more, but do those who have   more, not make more, pay higher income tax? In general, no. In most locales, income tax is based on income, not on wealth. I am retired. I have little income but a fair amount of wealth. I play very little income tax. (But I do pay other kinds of taxes.) Here's a scenario. 2 people of average wealth with similar situations   have the same job with equal pay. After 5 years, their situations   haven't changed and they still earn equal pay, but now one has $40,000   in their account and the other $9,000. Does one now pay higher income   tax because he has more in his account or does he pay the same because   he makes the same? In most locales, you pay income tax on everything that is counted as income. Your salary is income. In some cases, earned interest is income.  But aside from the earned interest from your bank accounts, neither the $40,000 nor the $9,000 is income. Your huge mansion isn't income. Your expensive car isn't income. The huge amount of land you own isn't income. The pricey artwork on your walls isn't income. You don't pay income tax on any of these, but your local may impose other taxes on these (such as property tax, etc.) [Note: consult the tax laws of your specific locale if you want to know details.] Fact check: not true.  Their **median** net worth dropped 39 percent from 2007 to 2010 while their **mean** net worth, which is what the title of this post implies, went down 14.7 percent over the same period.  Other things worth noting: the 2007 net worth values were adjusted for inflation using the Consumer Price Index (CPI-U-RS) and were based on the interviews of 6492 families in 2010 and 4421 in 2007.   Here's the [source article from the Fed [PDF Warning]](http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf). I think you are thinking too hard about this. If a billionaire's assets increase 70% in the stock market, he created $700M in new wealth.  If 300 people each create a million dollars in new wealth. We have 300 new millionaires creating 300M in wealth, but still 70% of wealth among the 301 people was created by the billionaire. 300 new millionaires is still a good thing, no matter what you think about how to tax a billionaire's assets. Net worth is interesting as it can have a different number assigned depending on your intent.  The number I focus on is my total retirement account and any brokerage account. I purposely exclude the value of my house.* This tells me how much I'm able to invest. My heir would look at it a bit differently. She'd have the cash not only from the house, but from every bit of our possessions that can be sold. For my own purposes, knowing I have a piece of art that might sell for $xxx doesn't mean much, except for insurance purposes. In your case, if the coins are gold, and held for investment, count them. If they were your grandfather's and you plan to leave them to your own grandkids, I'd leave them out.  * I make this point for two reasons - as someone with an eye toward retirement, the house doesn't get included in the 4% return math that I apply to the retirement and stock accounts. Also, in our situation, even when we downsize at retirement, the move isn't likely to pull much cash out of the house, it will be a lateral move. For those who plan to move from a McMansion in the suburbs of NY or Boston to a modest home in a lower cost of living elsewhere, that difference may be very important, and should be taken into account. This is simply how we handle this. "If you own 1% of a company, you are technically entitled to 1% of the current value and future profits of that company. However, you cannot, as you seem to imply, just decide at some point to take your ball and go home. You cannot call up the company and ask for 1% of their assets to be liquidated and given to you in cash. What the 1% stake in the company actually entitles you to is: 1% of total shareholder voting rights. Your ""aye"" or ""nay"" carries the weight of 1% of the total shareholder voting block. Doesn't sound like much, but when the average little guy has on the order of ten-millionths of a percentage point ownership of any big corporation, your one vote carries more weight than those of millions of single-share investors. 1% of future dividend payments made to shareholders. For every dollar the corporation makes in profits, and doesn't retain for future growth, you get a penny. Again, doesn't sound like much, but consider that the Simon property group, ranked #497 on the Fortune 500 list of the world's biggest companies by revenue, made $1.4 billion in profits last year. 1% of that, if the company divvied it all up, is $14 million. If you bought your 1% stake in March of 2009, you would have paid a paltry $83 million, and be earning roughly 16% on your initial investment annually just in dividends (to say nothing of the roughly 450% increase in stock price since that time, making the value of your holdings roughly $460 million; that does reduce your actual dividend yield to about 3% of holdings value). If this doesn't sound appealing, and you want out, you would sell your 1% stake. The price you would get for this total stake may or may not be 1% of the company's book value. This is for many reasons: Now, to answer your hypothetical: If Apple's stock, tomorrow, went from $420b market cap to zero, that would mean that the market unanimously thought, when they woke up tomorrow morning, that the company was all of a sudden absolutely worthless. In order to have this unanimous consent, the market must be thoroughly convinced, by looking at SEC filings of assets, liabilities and profits, listening to executive statements, etc that an investor wouldn't see even one penny returned of any cash investment made in this company's stock. That's impossible; the price of a share is based on what someone will pay to have it (or accept to be rid of it). Nobody ever just gives stock away for free on the trading floor, so even if they're selling 10 shares for a penny, they're selling it, and so the stock has a value ($0.001/share).  We can say, however, that a fall to ""effectively zero"" is possible, because they've happened. Enron, for instance, lost half its share value in just one week in mid-October as the scope of the accounting scandal started becoming evident. That was just the steepest part of an 18-month fall from $90/share in August '00, to just $0.12/share as of its bankruptcy filing in Dec '01; a 99.87% loss of value. Now, this is an extreme example, but it illustrates what would be necessary to get a stock to go all the way to zero (if indeed it ever really could). Enron's stock wasn't delisted until a month and a half after Enron's bankruptcy filing, it was done based on NYSE listing rules (the stock had been trading at less than a dollar for 30 days), and was still traded ""over the counter"" on the Pink Sheets after that point. Enron didn't divest all its assets until 2006, and the company still exists (though its mission is now to sue other companies that had a hand in the fraud, get the money and turn it around to Enron creditors). I don't know when it stopped becoming a publicly-traded company (if indeed it ever did), but as I said, there is always someone willing to buy a bunch of really cheap shares to try and game the market (buying shares reduces the number available for sale, reducing supply, increasing price, making the investor a lot of money assuming he can offload them quickly enough)." In 2015 there's a $5.43M (That's million, as in 6 zeros) estate exemption. Even though it's $14K per year with no paperwork required, if you go over this, a bit of paperwork will let you tap your lifetime exemption. There's no tax consequence from this.  The Applicable Federal Rate is the minimum rate that must be charged for this to be considered a loan and not a gift. DJ's answer is correct, otherwise, and is worth knowing as there are circumstances where the strategy is applicable. If the OP were a high net worth client trying to save his estate tax exemption, this (Dj's) strategy works just fine.