Recently, the U.S. Internal Revenue Service (IRS) released statistics on various tax forms, updated through the 2015 tax year—that is, the statistics for 2015 returns filed as late as the October 2016 extension deadline. The figures were eye-opening, and one striking data point quickly emerged: filings of U.S. estate tax Form 706 have fallen very sharply over the past decade, an almost cliff-like drop, from 49,050 returns filed in 2006 to only 11,917 in 2015—a decline of 76%. In other words, only one in five hundred Americans actually needs to file an estate tax return.

　　This came as a shock to many who had long believed that the U.S. estate tax is prohibitively high and extremely burdensome. Wasn't it said that the U.S. estate tax is a 40% expropriation? So what exactly has caused actual estate tax filings to diverge so sharply from the conventional wisdom passed around by word of mouth?

　　It turns out that the first important reason is the continuously rising lifetime exemption for the U.S. estate tax. Although the U.S. estate tax rate is as high as 40%, in 2017 the tax exempts estates exceeding $5.49 million for individuals and exceeding $10.98 million for married couples. As a result, the estate tax applies only to the very wealthy, affecting just one in five hundred taxpayers.

　　Now look at the second figure. The lifetime exemption for each person's estate tax return in 2015 was $5.43 million, far above the mere $2 million lifetime exemption in 2006. This higher threshold has indeed benefited many people.

　　The 2015 estate tax returns reported total declared assets of $17.1 billion. The residents filing the most estate tax returns were from California, followed by Florida, New York, Texas and Illinois. This is hardly open to criticism, as these states are all places where America's ultra-high-net-worth individuals are heavily concentrated. However, we know that in many cases the decedent's estate is passed on to minor children. So we made a further breakdown: looking at estate tax returns of adults aged 18 and over, the residents filing the most returns were instead from South Dakota, the District of Columbia, Florida, Connecticut and North Dakota.

　　According to the IRS statistics, more than half of decedents' assets consist mainly of stocks and real estate.

　　If you recall the estate of the famous American tech giant Steve Jobs, it is a textbook example of the structure of a U.S. estate tax return. When Jobs passed away in 2011, the main wealth of his widow Laurene came from inheriting Jobs's stake in The Walt Disney Company, representing 7.8% of the entire company, with a market value of $12.7 billion in the first half of 2016. Laurene became Disney's largest individual shareholder. Disney shares accounted for more than 90% of Laurene's overall asset allocation and wealth structure. In 2016, Laurene did not hesitate to significantly reduce her Disney holdings, keeping only about 64 million shares, or a 4% stake—but still an enormous sum. Likewise, the most valuable piece of real estate Laurene owns is not a house but a yacht. The yacht's appearance was designed by French designer Philippe Starck, and Jobs himself took part in the design discussions. Named Venus, the yacht was only completed, fitted out and launched in October 2012, just one year after Jobs's death. It is 260 feet long and worth $138 million. Laurene now owns four residential properties in total. The home in Palo Alto where the couple once lived together is worth $8 million. Laurene also owns two other properties very close to each other in Woodside, California, valued at $7.5 million and $10 million respectively. These two houses bear witness to their life together; one of them is the former Jackling House, with its private tree-lined drive, a place that has long aroused everyone's curiosity. In mid-2016 Laurene also began rebuilding this house, turning it into the dream home they envisioned back then. According to the local county's building permit records, the new rebuilt home totals 15,689 square feet, with a main structure of 3,707 square feet; beyond that, it is designed with a yoga studio, two guest rooms, two swimming pools and a wine room. This property is the famous old Jackling House that Jobs bought in 1984. After the purchase, he spent seven years resolving various legal disputes, tore down the old mansion, and prepared in 2011 to build his dream home. However, he never submitted a new architectural design to the local county. Now Laurene is perhaps fulfilling Jobs's dream-home wish step by step. The new asset Laurene acquired after Jobs's death is a new home purchased in June 2015 in Malibu, a veritable mansion worth $44 million. Like other billionaires, Laurene inherited two private jets: one is a 1999 Gulfstream G-V worth $30 million. And of course, Laurene owns more than one aircraft—there is also a 2013 Gulfstream G650 worth $60 million.

　　Judging from the structure of Jobs's estate, it is also typical of the estate asset structure of America's ultra-high-net-worth individuals. An analysis of the 2015 estate tax returns shows that high-net-worth individuals with total assets exceeding $20 million hold, on average, more than 38% of their assets in stocks, with relatively lower proportions held in real estate and retirement plan assets.

　　Another important reason for the sharp decline in estate tax filings is meticulous estate tax planning. At a recent congressional meeting discussing tax reform, Gary Cohn, Director of the U.S. National Economic Council, spoke the plain truth. He put it incisively: "Only rich people who do a poor job of tax planning pay the estate tax." This remark indeed reveals the secret weapon of estate tax planning among America's high-net-worth population: sound legal evaluation and careful tax planning. In estate tax planning, professionals such as lawyers, accountants and tax advisors contribute a great deal. The trusts, insurance and other business succession arrangements they build for high-net-worth individuals allow wealthy families to pass most of their assets safely on to their descendants with ease at a very low tax cost.

　　In the United States, estate tax planning is a very important part of the wealth transfer process. Estate planning is reasonable and legitimate, and very widespread. The tools commonly used in estate tax planning are generally multi-party legal structures benefiting others, such as trusts, life insurance and charitable donations, all of which can effectively offset the estate tax, or even avoid it. Using the services of professionals and the structures of the above financial instruments to design estate tax plans has already taken deep root in the United States.

Source: Guancheng Guodu (mp) 2017-10-03