26. Inheritance

“NO ONE SHOULD BE allowed to inherit wealth,” was another idea proposed at my dinner.

An essential part of the incentive to acquire assets is the underlying sense that the holder of those assets has the ability to control their disbursement; otherwise earnings would be meaningless. As mentioned earlier, one’s earnings can be voluntarily spent (transferred to another), invested (lent to another), or bequeathed (given to another). When the State interferes with one’s desire to bequeath those assets, one will find ways to circumvent or limit the impact of such interference. Numerous complex trusts and other vehicles have been created to circumvent inheritance interference. Undoubtedly, knowing human nature, people use many illegal maneuvers as well to accomplish similar results.

Although a death tax rate of approximately 50 percent is imposed on estates above a specified amount, very little of that tax is collected, because creative legal schemes are employed to reduce the impact. According to the IRS, estate taxes represent only about 1.25 percent of the tax revenue collected. Plug the loopholes, and new ones will soon emerge—that’s the nature of human ingenuity when it is hard at work defending life and property. If it were forbidden to give assets to one’s heirs, as was proposed, it would be naïve to think that such assets would, ipso facto, end up in the hands of the State.

When the State acquires the assets of an estate, they are simply distributed to persons other than those chosen by the earner. When one argues that heirs don’t deserve the assets because they didn’t earn them, what can be said about those persons who receive those assets via the State?

The individual who earned the wealth will spend, invest, and distribute his assets more discriminatingly than the State would, because the earner has a greater vested interest in the use of those assets. That vested interest may include concerns that gifting can do more harm than good. Gifting to heirs can, indeed, make their lives less rewarding and can trigger family squabbles. However, the market has, and will continue to develop, trusts and programs to help reduce a grantor’s concern about the risks and potential harm that can result from the distribution of an estate. Of course, a grantor can simply bequeath a portion, or all, of the estate to nonfamily members—a common practice.

Those who support a high estate or death tax sometimes argue that a concentration of wealth can lead to an abuse of power by a wealthy family. A family would abuse power, in this case, by seizing people’s property, plundering their earnings, and by waging war against competing families. Those are abuses of power! People who may be concerned about a potential abuse of power by a wealthy family should be even more gravely concerned about the actual abuse of power by the State at levels no family would be able to attain.