It’s an election year, which means if you’re a trusts and estates lawyer, you (and your clients) once again get to ruminate on the future of the estate tax.
And elections do matter. President Trump’s 2018 tax bill included a huge estate tax win for the wealthy, doubling the amount that can be passed to heirs tax free to about $22 million for a married couple (indexed for inflation, in 2020 it’s now over $23 million).
My own very subjective sense of the news is that the estate tax hasn’t garnered nearly as much attention this election cycle as it has in the past, but that may just be me. Anyway, the NYT recently published an excellent opinion piece by NYU Law Prof. Lily Batchelder entitled Tax the Rich and Their Heirs that’s packed with the kind of statistics law and economics nerds (like me!) love. Regardless of your politics, it’s well worth reading. Here’s an excerpt:
A massive transfer of wealth is underway and will accelerate in the coming years. Baby boomers and the generation that preceded them currently own $84 trillion, or 81 percent of all U.S. household wealth — wealth that will before long be inherited by their children and other beneficiaries.
This extraordinary transfer of resources will further cement the economic inequality that plagues the United States because this wealth is tightly concentrated in the hands of a few. And it will be passed on as taxes on such transfers are at historic lows.
Among high-income countries, the United States has one of the lowest levels of intergenerational economic mobility, meaning a child’s economic future is heavily influenced by his or her parents’ income. We have the second-highest level of income inequality after taxes and government transfers, and the highest level of wealth inequality. These disparities are sharply skewed by race. Median black household wealth is only 9 percent that of white households, a racial wealth gap that is even larger than in 1968. New research suggests the pandemic will further increase wealth inequality, as the affluent save more and the poor earn less.
Effectively addressing these systemic inequalities will require many things. But increasing the taxation of inheritances is one vital component.
This year, Americans will inherit about $765 billion. People who were already rich will inherit a lot more than people who weren’t wealthy. So will white households; they are twice as likely as black households to receive an inheritance, and receiving an inheritance is associated with an increase in wealth that is 26 times larger for white families than for black families. (This accounting of inheritances includes gifts and bequests, other than those to spouses or to support minor children.)
Roughly 40 percent of all household wealth stems from inheritances. This means that 40 percent of why some Americans are extraordinarily well off has nothing to do with smarts, hard work, frugality, lucky gambles or entrepreneurial ingenuity. It is simply because they were born to rich parents.