I can think of plenty of reasons against, but are there any pro-arguments for distributing one's inheritance according to genetics?
In particular is "free (unearned) money" a blessing or a curse?
Early Retirement Extreme Forums » Money Questions
Are inheritances a good idea?
(87 posts)-
Posted 11 months ago #
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I am 100% behind heavily taxing inheritances.
One of the only ways it could be ok for large inheritances is if the parents are awesome. The problem is that there is no guarantee and more than likely the parents won't be good enough.
Another situation would be if the parents started a company and died before their vision was complete. I'm kind of thinking of Elon Musk passing before some of his rather interesting companies become more permanent.
Blessing or curse? Again, this is highly dependent on the quality character of the parents/children. Some do interesting things with the money, but most don't reach their potential.
I would also say the amount of the inheritance would matter. Inheriting $500k as non-EREer would not permit you to party your life away, but inheriting Ford, Gates, or Buffett type money would enable you to be more than wasteful. Though, both Gates & Buffett do not plan on leaving billions for their kids.
Posted 11 months ago # -
I think it entirely depends on the attitude of the heirs and the person whose will it is.
They can create powerplays inside a family, tearing them apart at the seams. Or, the heirs can be pleasently surprised and make good use of the money that the deceased no longer has use of.
In theory, a family is more important to oneself than friends or strangers are, but if the family is already well off, then it makes sense to broaden one's scope to those less fortunate.
Naturally if one is really well off, it makes sense to begin gifting well before inheiritances are in the picture.
Posted 11 months ago # -
I suppose the question ultimately boils down to: who deserves to decide where a dead person's assets go to, that person or the government?
I do think inheritances should be heavily taxed, since they are essentially unearned income, and I think this should be logarithmically progressive to ensure generational wealth doesn't build up.
Posted 11 months ago # -
But it is earned money. If I earned it, I should be able to do as I choose with it. I can give it to my heirs, a foundation, donate it toward the national debt, whatever. But it should be my choice as to what happens with the money. And, it was taxed when I earned it. Why should it be taxed again?
Posted 11 months ago # -
Leaving fairness aside, if I had to think of a pro-argument it would be business continuity. The death of an unprepared owner would force the sale/closing of a business. Perhaps not a tragedy if the adult children were not involved in the day-to-day running of the business... but what if they are too young to work and the owner is no longer married to the other parent? The dependent children must be taken care of. Beyond that, tax it.
Posted 11 months ago # -
@MMen - Well, the argument against that is easy... you earned it, but whoever you gave it to didn't. In particular, if you use that already-taxed money to pay someone else for a job, why should they be taxed on it if they shouldn't be taxed if you simply gave it to them. This seems like a contradiction based on rather arbitrary rules.
Morals aside, easily identifiable events (making money/getting money for free/selling a house) can be taxed.
My question does not concern taxes though but rather whether giving (in particular) receiving money simply based on being related is a good idea. Both for the recipient and society as a whole. Imagine the following thought experiment: I'm stupendously rich ... rich enough to pay so that nobody has to work for four generations (imagine that my resources are converted into food and stuff so nobody has to make it). As a result, enormous amounts of skills are lost and humanity descends into the dark ages.
Similarly a trust fund baby or simply someone who received $100k of party money might descend into their personal version of the dark ages.
Or maybe I'm just moralizing some kind of calvinist viewpoint here ...
Posted 11 months ago # -
I think the question is kinda flawed. The assumption is that if you have built your own wealth that you actually know what to do with it....or atleast you are putting it to better use than those who have inherited wealth.
Just because someone has built there own wealth from the start doesnt mean that they actually know what to do with it. Plenty of self made people are reprehensible human beings and do evil things with money. So if someone inherits money and does reprehensible things - then whats the difference?
I do think however its an interesting question because we do take wierd ownership in our possessions including our wealth.
When we are alive we think it matters what happens to the things we have accrued. When we die....it means nadda, zippo, zip...
We also dont really have the foresight or abilities to predict what could happen to others should our wealth be redistributed after we die. Sure we can have preferences but until death and redistribution actually happens we cannot know.
So i reckon when my times up - hopefully in 50 years from now - my wife and children will get everything I have. Then again I may give it all to charity...or my new wife 65 years my junior...it will be interesting to see how that plays out!
Posted 11 months ago # -
I think the really interesting question here is whether we tax estates or tax inheritances. Taxing estates means that the government keeps a portion of the money to be doled out from the dead person's assets. Taxing inheritances means that the inheriting party pays a tax on the money that they receive (like a form of income).
Right now in the US, most taxes are on estates, with liberal exceptions for spouses, etc. But if we taxed inheritances instead at a threshold -- say only over $1 million -- then it would encourage large benefactors writing wills to "spread the money around", on the moral theory that an unearned resource ought to be modest. Of course, there would still be exceptions for immediate family whom the dead person had been supporting.
In any event, I don't really feel too sorry for wealthy people who let their estates go to probate. There are infinite mechanisms for setting up trusts or gifting during one's lifetime that avoid estate or inheritance taxes altogether. If you are wealthy, stupid and/or venal, we might as well take your money when you are dead (again, with exceptions for the people you were supporting). You certainly cannot use it in your grave.
This is why the thoughtful wealthy people create foundations or trusts long before they kick the bucket.
Posted 11 months ago # -
Sure it's good... maximizes the probability that your genes will propagate = you win! When they pass out genetic longevity awards in heaven, you will get a nice trophy.
Posted 11 months ago # -
heavily taxing inheritances would close quite a few family farms.
Posted 11 months ago # -
Jacob, let me ask you this. Are there any pro-arguments for distributing one's salary according to genetics? Is breakfast a blessing or a curse? I say feed the neighbor's kid breakfast, so your own children will know what it means to be hungry, while the neighbor gets fat and complacent.
P.S. Also, don't give your children love or affection. Save that for the dog.
Posted 11 months ago # -
@jacob
"My question does not concern taxes though but rather whether giving (in particular) receiving money simply based on being related is a good idea...Both for the recipient and society as a whole."
From that point of view, it would be very rare for a significant inheritence to be beneficial. Other than a couple odd situations I suggested in my first post I can't see how this type of freeride would be a net benefit to society.
Posted 11 months ago # -
Jacob, I think your question misses the point. If the IRS showed up at your door tomorrow and demanded half of everything you've ammased so far, I bet you'd be rightly outraged. But waiting until we're dead and unable to argue against it somehow makes this practice acceptable?
If my money is in fact mine, it shouldn't matter to anyone else what I do with it. If I want to leave it to my kids, start a foundation for medical research, provide scholarships for at-risk children, or have it put in a big pile and burned upon my death, shouldn't that be MY choice? Instead, my already-taxed money is going to get heavily taxed again and then - let's be honest - squandered by the government. That doesn't give me the warm and fuzzies. Just as I was a better steward of my money while I was alive, I'm certain I can do a better job than the government of finding a home for it once I shuffle off this mortal coil.
That said, I'll bite on your question. The answer is that it depends on what the next generation does with the inherited wealth. And based on that answer, it could be a blessing or a curse. Of course, that begs the question: who gets to judge whether someone has made good use of his money? I imagine most would say that we are misusing our own by living frugally and not partaking in all the excesses that our society offers. And that leads me right back to my earlier argument that what anyone does with his money should be of no concern to others.
Posted 11 months ago # -
When my father died 30 years ago I got an amount enough to visit together with DW and DD my sister in Australia (and to travel for 6 weeks in that beautiful continent). So that was a positive thing for which I had not the money otherwise.
When my mother died 9 years ago I was already financial independent, and I added the sum (about the cost of one year living) to my funds. So that was for me neutral. But for my siblings it was a very good upshot, one of them could buy for the first time in his life an apartment of his own. Another one could get a divorce and become single again with that money. So I think for them it was a positive event.
And society takes its part in the form of dead-taxes, also a positive destination.
I suppose those amounts are (becoming) not so exceptional.
To answer the question: Yes I think leaving inheritance to your spouse/partner (unlimited) and children in moderate amounts is a good idea. For all other situations (big sums, no siblings or no children) I think its better to choose a wise destination for your money.
Posted 11 months ago # -
"I can think of plenty of reasons against, but are there any pro-arguments for distributing one's inheritance according to genetics? In particular is "free (unearned) money" a blessing or a curse?"
It depends so much on the individuals involved...
When money is given to "society" via taxes we (society) are dependent upon our elected officials to do something positive with it. When it's given to individuals, we're dependent upon the individuals.
So to me the real question is: do we trust the government more, or less, than person X? On average, as a whole. What would we expect the government to do with the "inheritance" money it took from an heir selected by the money's original owner?
To blow this up: would I feel more comfortable leaving Bill Gates $1T, or leaving it to the US government? Bill Gates, without question, would do more good and less damage. When you put Rod Blagojevich's name in there instead... hell no. It's the good king/bad king debate.
Posted 11 months ago # -
Estate taxes inhibit capital accumulation and destroy businesses. The fact that they destroy businesses is why Buffett got so rich.
Posted 11 months ago # -
I'm curious why everyone assumes that an heir will do something stupid with their parent's money? Some will, but they all won't. Everyone here would spend an inheritance thoughtfully. Why do you assume your kids wouldn't?
Posted 11 months ago # -
Jennypenny, money changes hands between the living father of a family and his living daughter. Should those transactions also be taxed?
I think you edited your post so ignore this question.
Posted 11 months ago # -
"When money is given to "society" via taxes we (society) are dependent upon our elected officials to do something positive with it. When it's given to individuals, we're dependent upon the individuals."
The problem here is using the word "given" for both cases. In the first instance, money is not "given" to society, it is stolen through coercion from one individual and taken by another group of individuals. In the second instance, money is actually given voluntarily from one human being to another.
I personally believe it is moral to operate a society based on voluntary agreements, not clubbing each other over the head. Even if central planners could overcome the Hayekian problem of having universal situational knowledge, I still wouldn't think it would be right to make everyone else their servant.
Posted 11 months ago # -
At a theoretical level I agree that inheritances are a bad idea and completely contrary to the principle that "All men are created equal" (except for those who are created with a million dollar trust fund already in their name).
At a practical level, I'm not sure what the alternative would be, as I also agree that handing it to Uncle Sam to be used on illegal wars and the like is not necessarily better than building dynastic wealth. To be fair, though, the issue of how the government spends its money is separate. If the government spent money correctly I would have no qualms whatsoever with taxing the hell out of inheritances.
The distinction between taxing estates and taxing inheritances is an interesting one. I'm inclined to agree that individual inheritances should be taxed more heavily. The overall assets shouldn't necessarily be taxed as this is what leads to breaking up of family farms and businesses.
Posted 11 months ago # -
Please, let's ignore the "government is 100% evil", "all taxes are the devil's work", and the "IRS is a bunch of thugs" arguments, as those answers do not answer the question. The actual question is more interesting and I haven't heard many real answers suggesting how society would be better if inheritances were passed on in their entirety.
@jennnypenny
While, we may be less likely than most people to be corrupted by the money, I doubt it is significantly less likely. I don't think anyone can guarantee they wouldn't be changed by massive amounts of money all at once. Also, as we have noted numerous times, we are a very small minority of the population.Posted 11 months ago # -
I think the question has something to do with human behaviour and how many affects our human instincts.
I remember reading an article somewhere that excessively large bonuses are detrimental to an individual's productivity and creativity because the large bonus, think Wallstreet-like bonuses, distract people and create unnecessary stress. It also leads people to make impulsive decisions.
On the other hand, the article mentioned that moderate bonuses in the 15% to 20% range do not lead to these deleterious effects.
I suspect the same could be said of inheritances. A moderate sum to your children can give them opportunity but not deprive them of their enthusiasm, drive, and creativity. This is in line to Buffett's comment "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."
In other words, give enough to your kids so that they can be productive members of society but not so much that they become a burden on society.
I think the trick is being thoughtful about finding the right sum of money to gift which takes into consideration our human behaviour.
I think a reasonable inheritance for me would be a sum of money that generates enough income to meet 50% of my post-FI expenses. It would be a great start towards ERE but I would still have to earn the other 50%.
Posted 11 months ago # -
I suspect most of those who are against inheritances are people who haven't inherited much or have inherited so much that it was more of a burden than a pleasure.
My dad gave me some real estate before he died. Ok, technically I didn't even inherit it, but the net effect for me was the same and thanks to it I will soon retire early. ERE didn't get me there, but ERE-techniques will help me stay retired AND do the planet a favor.
My father basically used his right to dispose of his property the way he thought was best for his loved ones. I don't see anything wrong with that and I don't see how the timing (before or after his death) needs to matter. Also, I can imagine how many people prefer to transfer stuff to their kids after their death, because as long as they live they don't know if they'll still be needing it themselves or not.
People will always invent arbitrary moral rules to deny other people pleasures or advantages (be it sex, drugs, rock 'n roll, or inheritances). But I prefer in most cases that those people apply them to themselves and not to others who don't subscribe to their moral system.
I'm not accusing Jacob of being jealous or mean, but if he doesn't want his interitance, he's welcome to refuse it. ;-) But please don't take away mine, because it is making my life much better, which was the intention of my father and making sure his kids had a better life was a big reason why he worked and saved so hard.
Posted 11 months ago # -
As Chad mentioned Jacob's original question still stands, "Is giving or receiving money simply based on being related a good idea?". Issues of taxation and stewardship aside not much has been said over whether the act of giving/receiving based solely on genes is inherently good or bad.
Jacob's example shows how devastating it would be for the world's richest man to provide for 4 generations but does it then translate 1:1 that it's bad for me to give my kids 10k? 800k? 13 million? And who's to say the "dark ages" are so bad? What if having been provided for, mankind enters a cultural renaissance were art and music and literature flourish instead of trying to make better iTurds?
To that I say, moral relativism. How is anyone (anyone who is gifting an estate to kids, government, a corporation, a non-profit, etc) able to determine what is the "best/goodest" option for their money? Who could possibly know where their money will have the most utility and what metrics are you using to decide? Is utility of money even a valid measurement to start from? Why not happiness of receiver? Or owner of most gerbils?
Giving or receiving something is neutral. Related or not. The reasons why you give or what the person does with the gift can be bad or good but the act is neutral.
Are inheritances a good idea? They're an idea. And I'm glad I have the choice to exercise it according to my conceit.
Posted 11 months ago # -
I'm not sure "arbitrary" is an appropriate label, as it's not unrestricted by law and everyone would be treated the same.
Your ownership arguement can go both ways, as who says anyone should be allowed to own anything.
Or, we could say that there is no way your father could have owned that land, as some Native American did before him and he never sold it or gave it up by choice.
Or, we could say all of Itlay should revert back to Ceasar's relatives.
Etc.
Our society allows ownership because it benefits the individuals and society. Allowing large inheritences definitely does not benefit society on a whole and, depending on your definition of "benefit," may not benefit the individual.
Posted 11 months ago # -
"Allowing large inheritences definitely does not benefit society on a whole and, depending on your definition of "benefit," may not benefit the individual."
Which begs the question "what is large"?
And what would be the basis of outlawing large inheritances? Fairness? I'd love to see Scott Adams react to that. Earlier this year he blogged a pretty outrageous opinion on fairness: "Fairness, is a concept invented so dumb people could participate in arguments. Fairness isn't a natural part of the universe. It's purely subjective."
Based on fairness, maybe inheriting genetic advantageous like superior intellict, great beauty, etc. should also be outlawed and corrected? Because, not everyone has the possibility of inheriting them. ;-)
(I'm not calling anyone dumb and in this company I am probably one of the dumber ones, but Scott's quip did make me grin)
Posted 11 months ago # -
@Marius: "I suspect most of those who are against inheritances are people who haven't inherited much or have inherited so much that it was more of a burden than a pleasure."
To be sure; and I suspect most of those who are for them either received one or expects to receive one.
This isn't just about fairness, it's about economics and human progress. Is there an example in history where the consolidation of wealth in the hands of a few individuals was beneficial to science, art, etc?
Posted 11 months ago # -
"To be sure; and I suspect most of those who are for them either received one or expects to receive one."
Yes, probably.
"This isn't just about fairness, it's about economics and human progress."
Is it a bad thing if the miller's son inherits the mill that his father owned and continues the family business? Maybe this helps the infrastructure stay in the hands of people who know best how it works. And if the miller knew that his children wouldn't inherit the mill, maybe he wouldn't take such good care of it or just sell it and blow all the money on coke and hookers in his old age. Would that be better for human progress?
Posted 11 months ago # -
@Marius: Well, I don't know how much we can determine from discussion of hypothetical individuals, since, as has been mentioned, every individual is different and will behave differently. It could be great for the local village if the miller inherits the mill, or it could be awful. Perhaps your miller's son inherits the mill, but is nowhere near as skilled a miller as his father and ends up providing subpar service, going bankrupt, blowing the mill's assets on coke and hookers, etc. Perhaps it would've been better for society if the original mill was broken up and a new mill of equal efficiency was allowed to form by the free market. We can take hypothetical examples any direction.
However, I will say that there does seem to be a difference between inheriting a million dollars, and inheriting a business worth a million dollars, at least to my mind.
Posted 11 months ago # -
Rather than look at an inheritance from the perspective of the beneficiary, consider the testamentary transfer (by will or trust) as a vehicle for achieving life+ social goals by the person leaving the inheritance.
@Ego already mentioned business longevity. If you own a vineyard in Napa that makes great wines, the estate tax may force the sale of the land; so that your children will not be able to continue a great legacy of providing a sought-after product.
Another instance of intergenerational planning has to do with schooling. For example, many Catholic families want to ensure that their children and grandchildren have the opportunity to attend parochial schools that charge tuition but provide religious education unavailable in public schools. Additionally, many of these schools are more academically oriented and have fewer social problems because delinquent youths can be expelled easily.
Personally, my father created a trust that ensured that my siblings and I were able to obtain university degrees (and in the case of my brothers and me law degrees) from excellent schools without recourse to student loan debt. He'd been forced to drop out of college in the aftermath of the Great Depression; so he had a life long mantra about the primacy of education that his children were steeped in from infancy. Putting aside the situation now, not going to university in the 1980s was simply not an option for my siblings and for me.
As always, a person can be opposed to estate taxation simply because he or she disapproves of the uses the government may put it to. That can be left of center (no financing the wars in the middle east) or right of center (no financing the welfare state or the public educational system). I believe strongly in the principle of subsidiarity and have no faith in the national governments' ability to deliver ANYTHING but military defense. Almost every other government program is more efficiently executed by state and local governments.
Posted 11 months ago # -
@Spartan_Warrior: I agree that there's a difference between inheriting cash and inheriting the means to make cash.
Some of the comments in this thread imply (to me) that assets of the deceased are the government's to take and redistribute at will unless justification for NOT taking them can be provided.
This gets back to the Libertarian thread. If I own myself, I own my labor. If I own my labor, I own what my labor produces. If you can take the fruits of my labor without my permission, I don't own my labor. If I don't own my labor, I don't own myself, and am ergo a slave.
One could argue that inheritance is not about labor at all and that is the crux of this thread. BUT... I think if we accept private ownership of one's own work/laborfruit/money, we also accept that the PRODUCER has the right to spend it as he sees fit... even if society disagrees with the manner in which he chooses to do it. This isn't about the beneficiary's rights (he has none, really) as much as it's about the rights of the person who generated the assets to do with them whatever he pleases.
To the degree that we discount the rights of a rich person to leave money to his heirs (biological or otherwise), we also discount our own rights to do things we like with the fruits of OUR labor. Which we also own. Things like... oh, I don't know...
ERE. :-)
Posted 11 months ago # -
Ah, but the related question we're all dancing around here is "Do dead people have rights to decide what happens to assets in the land of the living and how far do they extend?" One of the fundamental issues of the law of Trusts & Estates.
Ye olde common law answers this with a variety of doctrines, including the so-called "Rule Against Perpetuities", one of the most convoluted things you'll ever run into. In its simplest form, it says that any trust that would have a duration of longer than "a life plus 21 years" is invalid and void ab initio. Then you get to argue about whose life it is we are talking about -- its usually somebody potentially alive when the trust is formed.
The principle behind the RAP is that we don't want productive assets to be taken out of circulation or reserved for some purpose that was interesting 100 or more years ago, but is relatively useless today - e.g., "this land may only be used as a preserve for passenger pigeons." The boney hand of the corpse is only allowed to extend so far out of the grave . . .
This is also why if there are no lawful heirs, property eventually escheats to the state (used to be the king).
Posted 11 months ago # -
Interesting point, Dragline. If I can decide to donate my body to science when I die, or forbid its use for the same... do I have a right to do the same with my cash? Why or why not?
Posted 11 months ago # -
@Dragline
The initial rationale for the RAP was to undermine the English aristocracy's efforts to thwart royal perogative. By the time ye olde American colonies inherited it, along with all the other oddiments of the common law, the rationale had morphed to the concern you note about entailments that barred the highest and best use of the property in question. It would not have furthered the industial revolution to permit restricted uses for land, e.g., for agriculture or hunting only as opposed to mining and industry.But at its root, the Rule Against Perpetuities is anti-democratic. And it makes much more sense for real estate than it does for property like stocks, bonds, cash, etc. Hey, if Larry Ellison can buy 98% of a Hawaiian island as a monument to his colossal ego; why shouldn't I be able to direct my heirs to use my property in a way that gratifies me beyond the grave. If they don't want to do it, they can always refuse the bequest.
Posted 11 months ago # -
All this discussion about inheritance taxes is interesting, but I read Jacob's original question to consider whether you, generator of both wealth and human offspring, would be wise to monetarily assist those carrying on your biological legacy.
I'll say: maybe. Observing your spawn's interaction in the world would be key. You could evaluate the kid on their capacity to do good. Without the need for a regular income stream, I would say that investing in beneficial human capital would be my next priority. An inheritance could be one such investment.
Surely, given two equally good people, an investment in your own offspring wouldn't be more favorable than investing in someone else. However, I'd assume that if my good kid were to get the inheritance, he'd have a stronger pull to not screw it up.
Posted 11 months ago # -
It's hard to argue against the idea that inheritances are "beneficial" to the decedent. He gets to experience the good feelings that come of directing control over his assets and giving a gift to loved ones. Most of the arguments in favor of inheritance seem to be citing this aspect.
Then there is the heir, where it's a little murkier. In my opinion, the heir clearly does benefit, but there may be some argument to be made that in receiving free money an individual is less likely to meet his full potential or achieve his maximum utility to society. (I wouldn't agree.)
Then there is society as a whole. And no matter how I look at it, I can't see how inheritances serve the "greater good" of a democratic, capitalistic society, and have not seen any convincing arguments to this effect here. Inheritance introduces a handicap that seems only to serve class immobility and wealth consolidation. If anything it seems like a rather feudal holdover.
Posted 11 months ago # -
I think this entire conversation is fundamentally flawed. Jacob, you say you want to put morals aside, but then you ask if inheritances are a good idea. Trying to define the "good" is inherently a moral question.
An amoral answer to your question would be "it's a good idea for some, and a bad idea for others." But that's not very interesting.
Posted 11 months ago # -
Maus, interesting that you mention the case of estate taxes "forcing the sale" of a business. Christopherjart also mentioned this.
But my understanding is that when you inherit real estate, stocks, etc., your BASIS is adjusted. But there's no forced sale. Is this understanding wrong? Seems like a misconception to me.
There are a lot of misconceptions in this thread (not to mention that people are answering three different questions: should YOU leave money to your kids, is it good for SOCIETY for people to leave money to their kids, and is it good to TAX such transfers).
Roark said "money changes hands between the living father of a family and his living daughter. Should those transactions also be taxed?"
Well, this is in fact taxed much like estates. After a certain value, you pay a gift tax. We tax income, dividends, appreciation, sales, profits, gifts, etc. Multiple taxation is real, and for the most part, needed to achieve different goals. Sure, you could roll it all up into one huge income tax, but the very same people who want that are the ones that would abhor the end result: a higher level of socialism (not sure if that's the right word, but that's what it would be called).
Lets assume that you accept the government needs SOME level of revenue. For any given revenue level (regardless of whether that level is higher or lower than the current revenue level), you have to decide what to tax. You want to get rid of the estate tax? Then you'll have to increase another tax. Which one should be increased?
Posted 11 months ago # -
@dragoncar
I can't speak from personal experience about the interaction of adjusted bases and tax liability for an estate. I am not a tax attorney and never even took the class in law school. Thank God it wasn't on the CA bar, as it was in NY (at least back then).But I can tell you that my older brother has spent his entire 40+ year career as an attorney, first with the IRS and then in private practice, dealing with intergenerational transfers and tax liability. Perhaps it's just something about the extraordiary value of Napa wine estates; but for the rest of us 99%ers the current estate tax is a non-issue.
Posted 11 months ago #
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