Silicon Valley Billionaire Takes Out $201 Million Life Insurance Policy 300
Hugh Pickens DOT Com writes "The Mercury News reports that somewhere in Silicon Valley, a 'mystery billionaire' has bought what the Guinness Book of World Records says is the most valuable life insurance policy in history — a policy that will pay his survivors a cool $201 million. Was it Larry Ellison? Eric Schmidt? Elon Musk? Zuck? Nobody knows because the name of the buyer is a closely guarded secret. 'We don't want hit men running around Palo Alto trying to find him — or members of his own estate,' joked Dovi Frances, the Southern California financial services provider who sold the policy. By last count, California boasts 111 billionaires with more than a third of them in tech, while San Francisco has 20 billionaires alone so it could be any of them. But why does a billionaire even need to take out life insurance when he or she has so many other assets. The most likely answer to this question is taxes and estate planning.
Upon death, an estate would be liable to pay off loans on any leveraged properties, plus a lot of money as part of the death taxes owed. This could force the estate to liquidate holdings to raise the money to pay off these liabilities even if it weren't the most opportune time to sell the assets. By taking out the life insurance policy, it would give the estate more flexibility in paying off the taxes and other debts owed, without necessarily having to sell assets to do so. 'In California, there are state death taxes that are exceptionally high (45 percent),' says Frances adding that the policy is actually a combination of more than two dozen policies, underwritten by 19 different insurers because if any single company had to pay out such a lavish benefit, it could be crippling. 'If your properties are leveraged then those loans are called immediately and need to be paid off, you want to hedge yourself against such a risk so [your beneficiary] can receive the proceeds without being exposed to taxes.'"
Upon death, an estate would be liable to pay off loans on any leveraged properties, plus a lot of money as part of the death taxes owed. This could force the estate to liquidate holdings to raise the money to pay off these liabilities even if it weren't the most opportune time to sell the assets. By taking out the life insurance policy, it would give the estate more flexibility in paying off the taxes and other debts owed, without necessarily having to sell assets to do so. 'In California, there are state death taxes that are exceptionally high (45 percent),' says Frances adding that the policy is actually a combination of more than two dozen policies, underwritten by 19 different insurers because if any single company had to pay out such a lavish benefit, it could be crippling. 'If your properties are leveraged then those loans are called immediately and need to be paid off, you want to hedge yourself against such a risk so [your beneficiary] can receive the proceeds without being exposed to taxes.'"
Re:We need to stop big tax dodgers useing loop hol (Score:5, Insightful)
We need to stop big tax dodgers useing loop holes to pay no taxes.
No, no, no!
We need to force politicians to eliminate the loopholes, which are all legal and often intentional
To create legal loopholes and then to expect people to voluntarily pay more (than they have to) taxes is a losing and pointless battle.
Estate Taxes (Score:5, Insightful)
Don't be a douche by calling them "death taxes".
Re:We need to stop big tax dodgers useing loop hol (Score:5, Insightful)
We need to stop big tax dodgers useing loop holes to pay no taxes.
No tax dodging. They are going to pay taxes with the life insurance money instead of having to sell off assets. That's the point.
Re:We need to stop big tax dodgers useing loop hol (Score:3, Insightful)
Re:Death+Taxes (Score:5, Insightful)
Re:We need to stop big tax dodgers useing loop hol (Score:5, Insightful)
Why is there an estate tax of 45% upon anyone's death!!!
Because if you don't heavily tax (effectively) inheritance then that's your new aristocracy right there.
Re:We need to stop big tax dodgers useing loop hol (Score:5, Insightful)
You and the OP are still seeing the wrong side of this....
Why is there an estate tax of 45% upon anyone's death!!! That income has been taxed already. Bequeathment is not a fucking INCOME issue.
It may have been taxed as income for the principal - although anyone that rich probably managed to find a way not to pay it to begin with - but when the estate is passed to heirs, it becomes their income, and just like any other system where cash flows from point to point, it becomes fair game for the taxman again.
I will get a lot of grief for saying this, but I wouldn't cry if the whole Death Tax thing were 100% less what it takes to support minor heirs until they're grown up enough to be able to make their own fortunes. That's because the best legacy that a successful person can leave his/her heirs isn't a large chunk of money, it's the skills and mentoring that will make them successful on their own without simply breeding up a generation of useless drones living off other people's hard work. And after all, isn't that what we revile welfare recipients for?
We don't (so far) allow you to be handed political power simply because of who your parents are a la monarchy in the USA. But we do support handing wealth to people simply because of who your parents are.
Winning the genetic lottery (Score:4, Insightful)
We can assume they paid their taxes when they received their paychecks. Why should their heirs pay them again?
Because their heirs did nothing to earn the money unless we consider kissing ass a valuable skill. They essentially won the (genetic) lottery and they should be taxed the same as someone who won the Mega-Millions lottery. The source of the funds is irrelevant. If I gave you $1 billion today then you would owe taxes on it. Why should it be any different if we happen to be related?
Re:Death+Taxes (Score:0, Insightful)
Only the immoral think it's appropriate to tax an estate that has been earned.
Re:Estate Taxes (Score:5, Insightful)
Re:We need to stop big tax dodgers useing loop hol (Score:4, Insightful)
For the same reason why when I pay my plumber out of money I have that was already taxed, he has to pay taxes on it as well.
Money is usually taxed when it changes hands. Now I'll admit in case of estates it's not really practical because there are so many ways to get around it, and it also makes stupid situations happen, like if a parent wants to help an adult child pay for an expense they have, they are limited to the ~$14,000 a year gift limit without the kid being taxed as well.
So I admit it's a stupid law, but saying it's already been taxed is not a good argument against it in my opinion.
Re:We need to stop big tax dodgers useing loop hol (Score:5, Insightful)
Quite a few billionaires (Buffet, Trump) would disagree with you.
If I am a brilliant man and create a company (and create value), I deserve to keep that. But why should my descendants, who are by virtue of their birth part of a "lucky sperm club," entitled to all that wealth?
True capitalism should require a level playing field when you start, and to really do that, when the final score is tallied, the slate should be wiped clean.
That's why such super high estate taxes exist. And typically they're not for you and me, it's for people over a certain threshold (say $1 mio + in assets)
Re:Estate Taxes (Score:5, Insightful)
How so? They aren't losing anything out of their own pockets, and they certainly aren't losing anything they earned.
Re:We need to stop big tax dodgers useing loop hol (Score:4, Insightful)
They pay capital gains based on appreciation from the fair market value when they inherited the asset, not when the purchase price their ancestor paid.
If you didn't built it it should be taxed (Score:5, Insightful)
So you are saying if someone should happen to get lucky that the state should take it away from them because it's not you?
Has nothing to do with whether it is me or someone else. If I won the lottery today I would be taxed on the income. Getting an inheritance on an asset you didn't help create is functionally identical to winning a lottery and should be taxed the same way. There are a few exceptions I would make for exceptional cases of bad luck (like underage children whose parents died unexpectedly) but those corner cases are fairly easy to deal with.
It's not only the super rich that inherit things.
True but irrelevant. The only difference is the amount they inherit, not the principle of how it should be handled. You unexpectedly come into some money you should be taxed on it the same as anyone else. No better, no worse.
Farms that have been in families for generations are being sold off to pay the taxes when the farmer tries to pass it to his children
The question is whether the children were involved in the farm prior to the farmer dying. If they were involved then they helped earn the income and we can handled that as we would any other business that changes owners. If they were not substantially involved in the work of building the company then they can pay their lottery winnings the same as anyone else. If that requires selling off assets to pay the tax man then so be it.
If the farmer has a brain in their skull they will have the farm held in a corporation and have named the heirs as shareholders. Hell they can hold this stuff in a trust if they want to. But just because your parents had an asset that they worked hard for doesn't mean you should be entitled to it unless you worked hard for it too. If the kids helped build the farm and worked hard at doing so then they have earned the income and there is no problem. It's a working business that will require continued work to make money, not a cash award. If they are just handed the keys then it is nothing more than an asset that should be taxed like lottery winnings.
These farms may have millions of dollars in the equipment alone so the state sees these kids as inheriting millions of dollars.
If they were suddenly gifted the farm upon the death of the former owner and were not working the farm themselves then they WERE inheriting millions of dollars. If the kids were working the farm and appropriate business arrangements were made then it's hardly a lottery ticket. Working a farm is hard work. We can make some sane exceptions for productive business assets utilized appropriately but let's not confuse a working business with a cash bequeathment. If all the kids did was inherit the farm then it isn't a family asset.
These are people that have worked a farm their entire lives only to have it ripped from their hands because of class-envy assholes like you think they are getting away with something.
"Class envy"? Fuck you. You know nothing about me. I've worked my entire life too, inherited nothing, I'm doing just fine and I don't give a shit about people who think they are entitled to something just because their parents worked hard. I'm talking about applying the same rules to everyone and not giving a pass to people who are lucky enough to come into wealth they didn't earn themselves. You think that people who picked the right parents should be subject to special rules?
How 'bout trying to mind your own damn business
When we have a trillion dollar public debt, tax policy IS my damn business. Yours too.
Re:We need to stop big tax dodgers useing loop hol (Score:4, Insightful)
Quite a few billionaires (Buffet, Trump) would disagree with you.
If I am a brilliant man and create a company (and create value), I deserve to keep that. But why should my descendants, who are by virtue of their birth part of a "lucky sperm club," entitled to all that wealth?
True capitalism should require a level playing field when you start, and to really do that, when the final score is tallied, the slate should be wiped clean.
That's why such super high estate taxes exist. And typically they're not for you and me, it's for people over a certain threshold (say $1 mio + in assets)
Because building for my family's future is one of my primary motivators. I'm not just in it for myself. If I die I want my kids to receive the same education they would if I were still alive. The government already takes half of what I earn, and I will do everything legally possible to give them nothing more when I die.
If you didn't make it then it is income (Score:5, Insightful)
Why is there an estate tax of 45% upon anyone's death!!!
There isn't. Only people inheriting assets worth millions are subject to such a tax. Furthermore why should the family be entitled to inherit a large fortune that they played no role in creating? If the kids weren't involved in creating the wealth then they should have no special tax rights regarding receiving the wealth.
That income has been taxed already. Bequeathment is not a fucking INCOME issue.
Inheritance most certainly IS income to the person inheriting it. The inheritor by definition did nothing to create that asset and to them it is income. It is functionally identical to them winning a lottery and should be taxed under the same rules. Whether or not the inheritor is related should be irrelevant to the discussion.
If you want to argue (pointlessly) again the income tax then that is a separate discussion. But as a principle inheritances should be handled just like lottery winnings for any part of the inheritance that wasn't created by the inheritor.
Give it away and it is not yours (Score:3, Insightful)
The point is that it is YOUR money, and you paid the taxes on it. As such why the fuck should the government get to double tax you?
When you give it away it by definition is NOT your money (you gave it away) and therefor you cannot be taxed twice on it. It's someone else's money AND it is money they did not earn. It is functionally equivalent to lottery winnings and should be taxed the same way.
Definition of income (Score:4, Insightful)
If we had one tax rate for everyone, it would solve the problem of tax loopholes.
No it would not. The loopholes aren't in the tax rate. The loopholes are in defining income. Defining income is complicated and that is what 90%+ of the tax code is. You want to simplify the tax code then you need to simplify the definition of income. A good start to that is to not make special tax exemptions for special groups. When you do that you are complicating the definition of income and saying a particular group deserves to pay less because their "income" is less.
Re:Estate Taxes (Score:4, Insightful)
So the government earned it? I don't think so.
Assuming the heirs in question weren't butchered by a mob along with their billionaire parents and the entire estate burnt down... Yes, the government earned it.
These heirs wouldn't have ANY money, nor their parents, if it wasn't for the government. If they had anything of value, they would likely have been killed and the valuables stolen if not for the government.
Not to mention they probably would have died during birth if not for the hospitals and medicine made possible by a stable economy, roads to get them to said hospital, and police to protect their safety and possessions.
If they want to claim they owe the government nothing, they also lose the right to complain when the rest of us murder them and take their stuff. I seriously doubt they really would go with that option if given the choice.
Either defend yourself 100%, or stop complaining and pay up for the protection offered.
Re:You'd be surprised how low the 50% bracket reac (Score:2, Insightful)
If you make $50K a year, you are in the 25% Federal bracket,and if you are in California another 9.3%, then don't forget social security and medicare - 7.65%, and if you go thru the trouble of being self employed, you get to pay that twice, or 15.3%... OK you're right. It is ONLY 49.6% tax, for a self employed person in California
I see, the 25% tax bracket is for all income $0-50K/year? I take it you're not an accountant.
Your numbers are bullshit, they don't even account for standard deductions or any other factors that run counter to your message, but what really gets me is that you use the word "bracket" without even understanding what it means. I get the idea: you're a loudly ignorant about things you talk about as a typical member of the tea party.
Re:You'd be surprised how low the 50% bracket reac (Score:5, Insightful)
Stop pretending you pay the *marginal* tax rate on ALL of your income. You have an argument, but you weaken it with sloppy form. Oh, and said example pays last dollar at 15%, not 25%.
Tax rate schedule from here: http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/
$50k in 2013, no kids, all self-employment. Subtract standard deduction (6100) and personal exemption (3900), and 1/2 of self-employment tax (3825), net taxable income is $36175. First 8925 gets taxed at 10%, income from 8926 to 36250 gets taxed at 15%. 892.5 + (36175-8925)*.15 = $4087.5 in tax -- 8.175% effective income tax.
Add 15.3% self-employment tax (you pay employee and employer halves) 50000*.153 = $7650
Total effective federal liability of 23.475%
Assuming your California number of 9.3%, that's a total income-based tax burden of 32.775%, or a little less than 1/3.
Non self-employed in same circumstance DOES fall under 25% marginal rate, but only by $3750, tax of $5928.75 for effective tax rate 11.8575% + 7.65% FICA.
Total federal of 19.5075%, together with 9.3% California for a total of 28.8075%.
28% ish to 32% ish of total income-based liability isn't cheap, but it's certainly not the 50%+ you just tried to demonstrate.
It's even worse if you compare 12% or 8% to your suggested 25% marginal rate.
All that to say I think the numbers will be even lower if your knowledge of California marginal rates is similar to your knowledge of Federal marginal rates...