Thoughts About Social Justice and Estate Planning
Close your eyes and imagine somewhere, sometime a long time ago – someone stood up and said “this is my rock.” I’m guessing that the reaction of those around him/her was: “WTF is this person talking about?”
Little did they know what was coming.
Now many thousands of years later, first semester law school, we study Property 101. The artificial construct that an individual human can have rights in a thing, has grown into an elaborate set of laws and beliefs that provide foundations for essentially all the cultures throughout the world.
[Aside: While the Communist may argue that the idea of individual ownership is wrong, they still would support the proposition that there are rights that groups of people – the community – have with respect to property. And that concept, while different, is equally unnatural/man-made. In nature, there is no “ownership” at all.]
Second law school class is Real Property law. Someone said: “This is my space. From here to there, you can’t come on it without my permission, and all the rocks and trees and stuff that are in this space belong to me too.” Different, but in many ways the same as Property 101. Later comes Intellectual Property – same thing with some nuances.
In the end, through these classes we learn how property rights of all sorts can be sliced and diced, licensed, leased, conveyed, secured and sold, held in individual names, joint names, business entities and trusts; that equitable title can be segregated from legal title, and on and on. We’ve come a long ways from “This is my rock.”
And this concept of property ownership has led to a fantastic explosion of capital under the control of, and for the benefit of, humanity.
The idea that someone can own something has magnificently served humanity to incentivize people to find and improve things. If I fashion this rock to be a better tool for skinning deer, I can skin deer faster and then I will have more time to hunt and in the end I will get more food. Later came the division of labor: If I work all day making good tools, I can trade them for fish and meat with people who use my tools and spend all their days fishing and hunting. And on and on until, today: If I sit in this office and calculate these numbers all day, when I get done with work I can get a new mattress, and have my nails manicured.
The Place of Estate Planning.
Once we accept the idea of people having property rights in things, the next question is: “Ok so we agree this is your rock. But when you die, what happens to the rock?”
The options would be:
- It goes back to the community.
- It goes to someone genetically related to you, maybe with a requirement about their gender.
- It goes to whomever or whatever you want.
Older cultures, some of which are still operational, largely focus on #2 – it goes to your family, maybe the oldest male member.
Our society has developed a system that combines 1 and 3. We will let you say where some of it goes, but some of it comes back to the community at your death – the federal estate tax.
Remembering that the construct of property rights exists because it is beneficial to society in that property rights incentivize productivity, the question becomes: (1) Is letting you have the rock so long as you are alive, enough of an incentive to make you improve the rock; or, (2) If society sweetens the deal by giving you control over the disposition of the rock after you die, will you be sufficiently more productive during your life to justify the costs that society incurs by not terminating your rights in the rock at your death?
It’s not an easy calculation, and for whatever reasons, not a calculation that people seem to want to have a genuine conversation about. What makes the calculation especially difficult is that by granting post-death control in property the cost to society is more than the financial loss from foregoing access to the property itself. Rather, the more significant cost is the cultural impact of inherited wealth, of having a class of persons who are born into privilege.
To my way of thinking, capitalism is like nuclear power. Harnessed it provides amazing benefits to all. Unbridled it can have disastrous consequences. We want capitalism because it unleashes productivity and creativity from which we all benefit. But the byproduct of capitalism is a society with haves and have nots – wealth and opportunity disparity. Balancing the good of capitalism with its harmful bi-products is difficult, but is very much an issue in the realm of estate planning.
It is one thing to accept the proposition that someone in your high-school class, who grew up in a house like yours, bought food at the same grocery store, and went to the same school; worked very hard, was gifted with abilities, or just got lucky and as a result now has nicer things than you. This is a cost that society bears for the benefits of capitalism.
It is quite another thing to know that there are people who have never had to apply themselves, but who will always be comfortable and who will be provided better education and more opportunities than you or those in your family; and who will live in areas where others like them live, and that among their exclusive groups will control opportunities that they will share only with one another. This is a cost that society bears based solely on the speculative proposition that creative and hardworking people may, at some point in their careers, stop being productive and creative because they have accumulated enough property to care for themselves, and there is no reason for them to continue being productive and accumulating wealth unless they are given the power to control the disposition of that wealth after their death. To my way of thinking, a very speculative proposition.
But like the artificial construct of property rights, the idea of wealth disparity is so embedded in our culture that few people ever question its justification or origin. In fact, a majority of Americans consider the “death tax” unfair, while at the same time believe that wealth disparity is a major societal problem. There is a disconnect here.
Troublingly recent trends in the law have enhanced the ability of wealth to pass generationally without taxation. Changes in the federal estate tax law have dramatically increased the amount that passes tax free, while at the same time long held common law barriers (protections) to intergenerational wealth control, such as the rule against perpetuities, are being altered in states across the nation to further the ability to create “dynasty trusts” and other planning tools that seem to directly offend the sense of community interest in the estate planning process.
Let me offer one more visual to make the point – that point being that the costs of granting post-death property rights – the cost of generational wealth – are significant in the context of social justice – and are also deeply embedded in our culture.
Picture a stop light at which a well maintained newer model BMW is sitting next to an older mini-van with plastic replacing the missing rear window. Between the people in these two vehicles there are a whole lot of feelings flowing back and forth. The BMW driver might imagine how horrible it would be to be seen in a minivan in that condition. The BMW driver may feel pity or even guilt toward the driver of the van. The van driver, who may be proud of having any vehicle at all when s/he is parked in front of his/her home in his/her neighborhood, feels something else: shame, perhaps anger, embarrassment, maybe a sense of inadequacy while in the presence of the driver of the BMW. This vehicular expression of material wealth demands people make a judgment about each other. That is the culture we created and that we endorse every day, presumably so that we can enjoy the benefits of capitalism.
To further the argument that this is a system that we intentionally perpetuate, picture a 7 year-old child in the minivan (fastened into an appropriate car seat). That child has no sense that the vehicle s/he is in is any different, better or worse than the BMW, and attributes no fault and passes no judgment on his/her parent (the van’s driver). Ten years later, that child at age 17 would be mortified to be in this van. Would feel shame and embarrassment, would worry that his/her schoolmates might see him/her, would feel anger toward his parent for making him/her feel this shame.
The evolution from the 7 year-old to the 17 year-old is not natural. It is a calculated cultural indoctrination that serves the purposes of capitalism. A certain level of exposure to this toxin is necessary, and where the BMW driver is him/herself the wealth-creator, the dose may be tolerable in return for the benefits of incentivized productivity realized by the greater community. But the decision to expose people to this harm beyond the level absolutely necessary should be carefully weighed. I worry that we are currently out of balance, and only becoming more so.
My apologies. My mind wanders. Things have been slow in the probate/elder law world. Just thoughts. Please don’t take offense.