What is the purpose of the inheritance tax?

Sawfish

Sawfish

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The bottom of the sea.
I've thought long and hard about this and it's one of the most wrenching issues I can think of.

One one hand I tend to resist taxes--in a very real sense it's like the school bully who everyday takes a part of your lunch money, and when one day he takes less, says you're receiving a benefit and should feel grateful.

But absolutely public revenue is needed for such services as schools, police, fire, road construction/maintenance.

But inheritance tax serves a different purpose, and in my opinion is necessary, as much as i hate parting with assets I've assembled through effort and thrift, and increased by measured risk-taking. The purpose is to prevent the US from becoming something along the lines of a landed aristocracy. I have little doubt that, as in a bell curve distribution, few are really good at making and enlarging their assets such that in perhaps 5 generations within such a family of skilled assets-gathers, they would effectively become a separate class.

That would be pretty scary and socially destructive, I think.

So yep, on paper it sure looks like my daughter may have to pay US and state inheritance taxes, but I think that overall it's for the good of the nation, as I understood it as I grew up. It allows up to 11M to pass in federal, states vary, but the heir(s) is still left in a very advantageous position. At that figure our daughter probably won't have to pay fed inheritance, but if it falls to previous levels (~ $5M, I think?), she may. It will depend how I do over the next few years.

The law does encourage the formation of trusts of various kinds, which can dodge all or part, but it does so conditionally, not really enabling the very aggressive acquisition and concentration of wealth. In short, the lump sum is there but cannot be accessed freely or fully.

What are your thoughts, fellow-SFers?
 

In Australia we abolished death duty (inheritance tax) decades ago but probate is a charge for settlement of a will for estates that are over a certain threshold. However, it is not the same as inheritance tax.
 
Warrigal said:
In Australia we abolished death duty (inheritance tax) decades ago but probate is a charge for settlement of a will for estates that are over a certain threshold. However, it is not the same as inheritance tax.
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It's a kind of limited Re-set button.
 

CarolfromTX said:
It‘s Government overreach. It’s forced redistribution of wealth. It’s confiscatory. It’s wrong.
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Confiscatory yes, but on a moral level, inheritance taxes are also attractive. Even the most ardent of capitalists will argue that our economic system should be an incentive for hard work. Inheritance, obviously, makes a mockery of that. Limiting the flow of wealth from one generation to another would be highly desirable. But children who don’t earn, help to further stack the deck in favour of those who come from a wealthy background.

Of course, most socioeconomic inequality is entrenched long before a parent or grandparent dies, with middle class children getting a better education, living in safer areas, and having access to contacts and disposable income, but inheritance is the cherry on the anti-meritocratic cake.
 
In some respects the government makes out better when people inherit stuff like a house or stock because when they sell it's taxed at regular rate. I lived in a lot of older neighborhood where people live there decades at a time. When a senior passes I'd say at least half the time the heirs/children wind up selling it. Same for stocks. Unless someone is millionaire most want money.
 
1955 said:
In the US most people will not pay any death tax or inheritance tax unless their assets exceed almost 13 million for 2023.
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The states will get into your assets, too. It won't be the 12.92M for the fed.In OR, e.g, the threshold is $1M. Taxed at reg income rate of 11%. But the point is not *whether* you'll pay them, but what beneficial purpose them may have, if any.
 
Sawfish said:
Why wait for death, then? Why not just tax/re-distribute to achieve a sort of on-going equality of income?

Or impose a wealth tax as well as an income tax each year?
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You earn it, you get to use it (except for the usual taxes). My children can earn their own money.

I'm not advocating any particular system. Just saying I don't understand the point of inheritance.
 
NorthernLight said:
You earn it, you get to use it (except for the usual taxes). My children can earn their own money.

I'm not advocating any particular system. Just saying I don't understand the point of inheritance.
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Boy, I sure do...

The entire concept is my raison d'etre. To not pass stuff along--knowledge, values, assets, *every* benefit I can (as judged by me)--is to put yourself at a lower level of social awareness than the average German Shepherd.

Put another way, the average alligator mom passes nothing along to her offspring. The average cat mom teaches the kittens the basics of hunting/killing.

I pass along my observations/insights/values/investment techniques, plus 4M in rental property.

 
CarolfromTX said:
The point is to make life a little better for my family. MY family, not some strangers.
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Yes.

And I'll add that a long time ago I came to the conclusion that rather than an external authority trying to impose optimum levels for each member of society in order to have a solid and stable and essentially content society, if each family group attempts to optimize *their own* condition, to the very best of their ability, within reason, each family will feel essentially content and with most such families feeling this, the aggregate society will be both ordered and stable.

We're doing this as well as we know how, others can do it much better, others less well. The important thing is to do it as well as you can. Take control of it as much as you can, and do it.

I mean, right now, I have at least the contentment of knowing that I could not have done a whole lot more in that regard. That can give a person some peace, some satisfaction.
 
Sawfish said:
What is the purpose of the inheritance tax?
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My understanding is that it was supposed to limit passing on of great wealth to people who did not earn it. To prevent the kind of "noble" families that used to be so common in Europe.

I think that at some level this is a good idea. No problem with passing on some wealth and family businesses, that should happen. However there needs to be some limit. Maybe something like $10 million, or so.

The Dupont family is a good example, a couple of thousand people are still benefiting from what was built by Éleuthère Irénée du Pont 200+ years ago. The trust is now worth billions. Not that some of his descendants didn't contribute, they did and they should have benefited. People like Robert Richards, not so much (see: How A Du Pont Heir Avoided Jail Time For A Heinous Crime).

Our inheritance tax system has not accomplished those goals very well. Through loopholes, like trusts, the wealthiest Americans have been able to dodge a lot of inheritance tax, whilst the less well off farmers and business people have not.
CarolfromTX said:
The point is to make life a little better for my family.
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I agree, but it should be limited. For example I believe Bill Gates should be fully able to enjoy his money whilst alive, but after passing much of it should be taxed. Leave his family enough to live in some comfort, but not most of it. But for most of us, we should be able to leave what we have.
 
CarolfromTX said:
why should it be limited? I sure don’t want that decision made by politicians. And you know darn well it won’t apply to them.
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I can see what you are saying very clearly. It is my deep natural instinct to want to keep what I make myself, and I want others to have the same deal: they get to keep the stuff that they have put together. I'd hate to see it routinely given to others who have learned that they don't have to contribute and can still have the benefits of working. Everyone has to do as good as they reasonably can in order to have a functional society.

But I look at what I've seen in life, and I really and truly think that inside of 5 generations of concentrating wealth--and I do indeed think that money tends to marry into money, from what I can see--we'd get something a lot like a hereditary nobility, a lot like what's in England. And while I like the people I've met from the British Isles a lot, I don't particularly like the idea that a certain group of people think that because of who their parents are, they are somehow a better, finer species of human.

Yep, it's a real paradox, no doubt about it, and it's why I started the thread.

I'm real tight-fisted and protective of what we put together, that's for sure.

And I DO NOT think that the government *needs* the money they get from inheritance tax; its only purpose would be to keep an honest-to-god nobility from developing.
 
Well, if inherited wealth can form a nobility class, then it’s the politicians and their families who will benefit. How can the rest of us keep up? By keeping our wealth, too. And with the price of a college education these days, at least my grands can get out of school with little or no debt. Hopefully.
 
Shouldn't matter if your wealth is self-made or inherited. It's yours to manage how you see fit when it's yours. If you want to leave to family or to a charity instead, it's your choice not anyone else's. Your hard work is yours & it doesn't belong to the public. It's the better part of living in a non-socialist country.

I agree with CarolfromTX & what she said in post 22. It seems like the only nobility class in this country are the families getting elected generation after generation.

Remember, taxes have already been paid on this money when you earned it, now they are doing what I call double-dipping. Whether called death-taxes or inheritance taxes, its one of the reasons why so many family farms are lost along with small businesses.
 
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