Unrealized capital gains!!!???

[countryBoy641]

The tax rate cited in the article is 20%.
According to current Tax Regs that rate starts at $492,000 income.
Below that (44K to 492K) is 15% tax rate.
Below $44K is 0.00%, nobody. Nobody lives on 44K
So the entire discussion is about high net worth dudes (aka "Family Office")
The big problem the IRS has with
high net worth dudes
is that they hold a lot of stocks for long time.
Sometimes pay NO cap gains.
Then when the account owner(s) pass away, it gets distributed to heirs -
at the valuation on the Date of Death (6 month alternate valuation date allowed)
Meaning that for high net worth people
a lot of the cap gains were never taxed, at any rate.
In other words unless you are worth >$100Million, you have nothing to worry about.
***Not a tax professional here, but have been around this stuff for a while.

 

[BMK]

Viatical settlements are a fascinating investment, from the perspective of the buyer.

For the policyholder, it is a way to gain access to the death benefit while they are still alive.

A viatical settlement is possible even with a pure term life insurance policy that has no cash value.

This is because a viatical settlement is generally only offered when a physician has certified that the policyholder is terminally ill and unlikely to live more than a year or two.

It's not really about the cash value of the policy. It's about the death benefit.

The investor buys the death benefit at a discount. They become the beneficiary of the policy, and they get the full death benefit when the policyholder dies.

It's very much like buying a zero-coupon bond. But the maturity date is uncertain. Policyholders who take a viatical settlement sometimes beat the odds and live a lot longer than the doctors predicted.

It is possible to sell a life insurance policy even if you are not terminally ill. But I think it's harder to find a buyer, and the discount would be a lot deeper.

Matt Levine's column at Bloomberg has a fascinating discussion about firms that buy up life insurance policies and bundle them into trusts that become securities.

And how some older folks are buying new life insurance policies with the intent of immediately selling the policy to an investor... and why this practice may be illegal.

https://tinyurl.com/240430bblevine

This is a gift link. A Bloomberg subscription is not required. The link expires in seven days.

 

[The_Krakenite]

The way people talk in this thread, you'd think that not only do the super rich evade taxes, but that politicians know about this, and some are even in on the scam with them.

What an invalid and totally ridiculous tinfoil hat conspiracy theory...

 

[VicBee]

The way people talk in this thread, you'd think that not only do the super rich evade taxes, but that politicians know about this, and some are even in on the scam with them.

What an invalid and totally ridiculous tinfoil hat conspiracy theory...

Politicians are made aware of super rich accounting tricks by anyone who thinks it should either be illegal or made legal, they talk to their accountant who tells them it can be done and, voilà !

 

[countryBoy641]

Some corporate bonds have a feature called a survivor's option, which is sometimes referred to colloquially as a death put.

If the bond is held by an individual (not a business entity), and that person dies, the estate has the right to call the bond, and get immediate redemption at par value, regardless of the maturity date.

I've attached an example.

Should be "the estate has the right to put the bond"

 

[countryBoy641]

This entire discussion describes 3 issues:
1) the Fed gov is totally buried in debt, with little hope for a respite.
2) the top tax bracket has most of the wealth, supplemented by
the top sliver of "baby boomers".
3) The distinction between income tax (1040) and Inheritance tax (706)
is collapsing. In years (and decades past), tax filers could make a case that
various securities were purchased so long ago, records of purchase price were no longer available. But central databases of securities prices have been established decades ago,
by the CUSIP Service, created 40+ years ago by S&P.
***
The simple thing to do would be for a 706 to charge LTCG rates while the decedent was alive.
Then 706 rates (much higher) for the rest.
But many lawyers abhor compromise.
And the party running everything hasn't had a quiet moment of self reflection in many decades.
Maybe not ever once in the 20th Century.
I say: "Half a bite of the apple is better than no bite of the apple".