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Changes to U.S. taxing after death
Ray Madoff
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TEXT OF INTERVIEW
Kai Ryssdal: Among the many sayings Benjamin Franklin left us is this one, hat in this world nothing can be said to be certain except death and taxes. The death part is still true -- but the way we're taxing after death is changing.
That's the point Boston College law professor Ray Madoff makes in her new book "Immortality and the Law." She says "dead" doesn't really mean dead anymore, financially speaking. Because after some intensive lobbying from the banking industry, states have started extending to the well-off dearly departed permanent control over their trusts and estates.
Ray, welcome to the program.
Ray Madoff: A pleasure for me to be here, Kai.
Ryssdal: Obviously, somebody has made an argument to lawmakers and to lobbyists, and they said, "Listen, we think it's good for society if you let people control their money and their inheritances forever." What is that argument like?
Madoff: It's, "if you let us -- Alaska legislatures -- if you let us change our laws here in Alaska, then all this trust money that's currently in New York or other states will move into our state." And that's exactly what happened in Alaska. A local Alaska bank lobbied the legislatures to make Alaska the most trust-friendly state, and they were quite effective. And after that legislation, they attracted about $4 billion of trust money into the state.
Ryssdal: And then the state of Alaska can tax that and reap the benefits and so on.
Madoff: Interesting is that in order to attract the money, they also have to get the states not to impose income tax on this money. So the only way they benefit is if the banks themselves profit, and then maybe the state can collect some money. But this is really cases where there have been private benefits and unrecognized social costs.
Ryssdal: Well, layout the social costs.
Madoff: The problem is that right now estate planners are encouraging their clients to set up these things called "dynasty trusts." These are perpetual trusts for the benefit of a person's heirs. However, what people haven't been paying attention to is what the world is going to be like for our children, grandchildren, great-grandchildren, etc. when they have to live in a world where some people in society are beneficiaries of this trust and other people aren't.
Ryssdal: Seems to me though, there's nothing more fundamental than being able to decide what you want to have happen to your stuff, whether it's money or your favorite teddy bear from when you were a kid, forever. I mean, it's my stuff, I get to say who gets it, right?
Madoff: I totally agree with you, up until the word "forever." People should be able to decide what happens to their stuff, but stuff is something that has to be shared with future generations. Our world today would be very different if the people living before us allowed property to be subject to controls put into place 100 years ago, 200 years ago or 300 years ago. It's because the people who came before us were mindful of these costs that we are not suffering the burdens of it today. We have to be similarly mindful for future generations. And Thomas Jefferson was very, very mindful of this. Much of his writing was about how the world should be held for the living and the dead shouldn't have control over it.
Ryssdal: So back to the point that I started with in this interview, dead doesn't really mean dead anymore, but only if you've got enough money.
Madoff: It's definitely true. It's really for money people. Because in other interests, for example, with respect to reputation and the ability to control our bodies, Americans have virtually no rights at all. There, we have the clear rule of "you're dead and gone, and frankly, we're not that interested in what your views are."
Ryssdal: Professor Ray Madoff from Boston College. Her book is called "Immortality and the Law: The Rising Power of the American Dead." Professor Madoff, thanks so much for your time.
Madoff: Thank you Kai. It's been a real pleasure.
The case for dynasty trusts:
The concept of “dynasty trustsâ€, which if properly prepared usually have “asset protection†features, have proliferated because of several factors including principally, for example: (1) our new litigious society (including the remarkable number of divorces)which Thomas Jefferson did not anticipate or consider in his writings and (2) the numerous people with new found wealth from the technology era and public markets who are bequeathing significant wealth to younger generations who generally may have no or little appreciation or understanding of how to handle remarkable “inherited†wealth. These trusts are not “controlling†in the negative sense, but rather are helpful ways of avoiding the misguided judgment or mistakes of certain beneficiaries along with the well counseled advice of trustees and other financial and professional advisers, who will have the ability to exercise sound discretion that is appropriate for the beneficiaries and the changes over the years in society and its values.
Your assets have already been taxed when the money was earned. The gov't has no further claim, simply because you lived within your means and have the ability to leave something to your children. By taxing the daylights out of assets at death, all that will happen is that the money will go to other off-shore locations, and rightfully.
By not taxing estates, you encourage further saving and investment, not the opposite. By not taxing estates in the USA, more of the benefits will accrue to American society at large, not the economies of tax havens.
Look, the wealth gap is going to get larger because manual (i.e., unskilled) labor has less and less value, not only because globalization, but because we expect more complex and more reliable products. A computer processor can not be made by hand, no matter how cheap the labor. And no one would buy one made by hand, even if they could, because we expect every item we buy to work as advertised, not just a fraction of them. Additionally, support staff that ran sales forecast and P&L simulation spreadsheets by hand a generation ago, are simply unnecessary, and unwanted, as managers change cells in electronic spreadsheets and get the answers immediately. These mid-level white collar jobs are gone, along with the secretary. This leaves legions of moderately skilled or the less ambitious without a place at the table. These are 2 of the larger dynamics, and tax policy can not change these realities. We need to accept a 2-tiered society if we hope to prosper. The bankrupt European treasuries are the result of trying to fight these realities with redistributive policies. The pie just gets smaller and smaller.
Agreed with the feudalism comment. Without property and estate taxes and other financial motivators, America will very quickly become land of the elite nobility. A select few families owning huge tracts of tax-free land and money forever and ever. No opportunity for merit or hard work. You might as well start calling them, "The Count of Goldman Sachs" or "The Duchess of Hewlett Packard".
Talk about a race to the bottom. The Dakotas and Wyoming could easily follow.
This is a perverse example of a special interests abusing small state politics.
This is one of the rare cases where I think the Federal government should get involved. The feds could keep money in AK and force it to leave the trust if it leaves the state. Then we'd see whether Alaska still wanted to harbor zombies.
Wow, really interesting story. I've always thought that a 65-70% estate tax would be the key to a prosperous society, but it appears we are moving in the opposite direction. Some say that the "free market" dictates that one should have a say in your possessions after your death. I think that is bogus. Marketplaces take place in the world of the living, and the dead have no say in that. I look forward to reading Ms Madoff's book.
