Should every generation have to "start over"?

[Barrister]

I get the feeling Mimsy is talking about a family patrimony that grows (or at least maintains) with each generation, rather than a pot of money you can put up your nose at age 18.

Yes. I'm talking about a family legacy that keeps on being there and many generations can count on it. Not necessarily something grandiose, but maybe a nest egg of some kind that the various people who need to can fall back on it and not starve or be homeless. It could be a bank account I guess, but I was really thinking more like an old farm or maybe a business in the family or something. Some kind of thing that people can build over time.

There are very few businesses that can thrive and prosper across the generations though.  And "the family farm" can be a curse as much as it can be a blessing - farming is very capital intensive (and becoming moreso), so a farm which provided a nice income 30 years ago is completely uneconomical today.

I am very much of the view that while I have a duty to help and assist my kids, that duty is for when I'm alive.  As such I'll try and ensure they get the best opportunities, the best education so they can make the most out of life.  But short of putting together a seven-figure endowment, I can't see how my boys lives would be meaningfully improved if, in their 50s, they get a hundred thousand or two from me when I die.

[Barrister]

I think that the estate tax should take everything but, say, $500,000 per kid.  I've seen enough kids growing up knowing that they will inherit enough to live well so there is no need to try very hard, and it isn't pretty.  Which isn't to say that there are not lots of children of wealthy parents that get taught the same mindset that made their parents rich, but I think that, generally, people should succeed or fail based on the effort undertaken and choices made in life, not based on which parents they chose.

The estate tax is the most logical and least-distorting tax that exists.  Dead people don't resent paying it.  It only makes sense to maximize it (within reason).  Luckily, maximizing it serves a social as well as a revenue-generation purpose.

Trouble with estate taxes are they are almost trivial to avoid with a modicum of planning.  As such they only really affect those whose parents die young and unexpectedly, or whom are ignorant enough not to do proper estate planning.

And even $500,000, which sounds like a lot, might not be.  Lets say someone owns a nice little family business selling widgets.  They employ 15 people, and is worth $5 million dollars.  The owner dies and unless the heir can come up with $4.5mil to cover the estate fees, the business will either be crippled with debt or have to be sold.  Neither seems optimal for the overall economy.

Heck, $500k is not even enough for a 3 bedroom house in rural Surrey, UK. OMG TEH RICH

At first I read that as Surrey, BC.  But you'd still be correct.   

[MadImmortalMan]

Do you plan to pay for their college? Do you plan to at least not make them pay to bury you when you kick over? Those things are totally part of it.

Do you plan to maybe help them from time to time with things like cars or down payments for a house? Most parents I know have done things like that. (Not mine.)

[Tamas]

Do you plan to pay for their college? Do you plan to at least not make them pay to bury you when you kick over? Those things are totally part of it.

Do you plan to maybe help them from time to time with things like cars or down payments for a house? Most parents I know have done things like that. (Not mine.)

All the old people I have known/heard about are obsessed over saving at least as much as to finance their own burials. At least in Hungary. I think it is just decent human nature, considering the family as a basic unit you are supposed to support or the very least not be a burden to it.

[Sheilbh]

Do you not have paupers funerals in Hungary?

[Tamas]

Do you not have paupers funerals in Hungary?

They just introduced something like that a few years ago, but I am blurry on details. It is kind of mess like most laws created the last 4 years.

[Richard Hakluyt]

Are there no workhouses?





People do almost anything to avoid a pauper's funeral.

[Tamas]

I really am not sure.

Hungarian retired people usually just stop living for all intents and purposes (rural people at least). Not much to spend on that way (wouldn't be able to go on holidays and stuff anyways), so they usually end up with some savings, usually under their pillows, which in turn make them prime targets for conmen, scammers, and just plain old robbers.

[Sheilbh]

Are there no workhouses?





People do almost anything to avoid a pauper's funeral.

I thought of them after reading this rather strange story:
http://www.telegraph.co.uk/news/uknews/10584884/Paupers-funerals-making-comeback-as-families-exploit-loophole-to-save-funeral-costs.html

[frunk]

If we are assuming a family business/farm is set up as MiM proposed then presumably members of the family would be working for/on it from a young age.

If it is a family farm most of the members of the family will flee in terror at the thought of working for it or on it

Our family farm looks like it will be saved by my cousin's son, we finally found a member of the younger generation who wants to toil in rural Oklahoma.

In my own family my grandparents had a sawmill that did reasonably well.  There was no way that it could support the six children that they had.  Three (one brother, two sisters) worked/managed the mill with a couple of hired employees.  My father would have loved to stay and work on the mill and in fact it is his favorite thing to do when he visits there.  As it turns out it was probably for the best that he didn't.  My uncle's sons have had a rather acrimonious fight over ownership/management of the mill and have basically stopped talking to one another.  I'm quite happy that my immediate family is not involved in dealing with any of that.

[crazy canuck]

I can't see how my boys lives would be meaningfully improved if, in their 50s, they get a hundred thousand or two from me when I die.

Why, because they are going to be rolling in cash and so and extra couple hundred thousand won't matter.  Hell, I could use a couple hundred K easily.

[Barrister]

I can't see how my boys lives would be meaningfully improved if, in their 50s, they get a hundred thousand or two from me when I die.

Why, because they are going to be rolling in cash and so and extra couple hundred thousand won't matter.  Hell, I could use a couple hundred K easily.

Of course they could.

But I could also use the $300-$600K in my retirement.

But I said "meaningfully improved".  If my parents died today and I received $100k, would much change?  Not really.  I'd pay down the mortgage, chopping several years off of it.  Which would be nice, but not substantially alter my life.

I am taking steps to give my boys a good shot at life - saving for their education, and timing the house payments to be over by the time post-secondary starts so I can help pay for it.  But I don't see a straight cash inheritance (unless it's huge) making that much difference.

[Jacob]

I agree that front-loading the spending is probably more efficient, yeah.

Spend more on education and on raising them, and to help them during the early years when they're trying to establish themselves in their lives and careers.

Spending $100K, say, so they can graduate university debt-free or so they can make a down-payment for a slightly bigger/nicer place when (if) they buy their first home is likely to be more useful than adding $100K+interest to their assets 30-40 (or more) years later. It also has the advantage that you get to see and enjoy the kids benefitting from the fruits of your labour.

[grumbler]

Trouble with estate taxes are they are almost trivial to avoid with a modicum of planning.  As such they only really affect those whose parents die young and unexpectedly, or whom are ignorant enough not to do proper estate planning.

And even $500,000, which sounds like a lot, might not be.  Lets say someone owns a nice little family business selling widgets.  They employ 15 people, and is worth $5 million dollars.  The owner dies and unless the heir can come up with $4.5mil to cover the estate fees, the business will either be crippled with debt or have to be sold.  Neither seems optimal for the overall economy.

I have never understood this argument.  The people who started the business didn't start with a $5 million business; they started with a loan and built up from there.  If the original company can be created without the $5 million, so can the follow-on.  Debt isn't crippling to a business; it is the normal state of affairs.

As far as the estate tax being easy to avoid, that is true of all taxes designed to be avoided.  You would need to change some of the rules, but I'd see no problem with people giving away their estates while they are still alive, because then the recipient (or giver, depending on amount) have to pay income taxes, so society gets the benefits, and unearned wealth accumulation is impeded.

[Barrister]

Trouble with estate taxes are they are almost trivial to avoid with a modicum of planning.  As such they only really affect those whose parents die young and unexpectedly, or whom are ignorant enough not to do proper estate planning.

And even $500,000, which sounds like a lot, might not be.  Lets say someone owns a nice little family business selling widgets.  They employ 15 people, and is worth $5 million dollars.  The owner dies and unless the heir can come up with $4.5mil to cover the estate fees, the business will either be crippled with debt or have to be sold.  Neither seems optimal for the overall economy.

I have never understood this argument.  The people who started the business didn't start with a $5 million business; they started with a loan and built up from there.  If the original company can be created without the $5 million, so can the follow-on.  Debt isn't crippling to a business; it is the normal state of affairs.

As far as the estate tax being easy to avoid, that is true of all taxes designed to be avoided.  You would need to change some of the rules, but I'd see no problem with people giving away their estates while they are still alive, because then the recipient (or giver, depending on amount) have to pay income taxes, so society gets the benefits, and unearned wealth accumulation is impeded.

For the first part - the company presumably grew, organically over the years, into the $5mil business.  Some level of debt may not be crippling to a business, ut debt equal to 95% of the value of the company often is.  Look up the sordid history of leveraged buyouts for the problems that arise.

For the second part "you would just need to change some of the rules" sounds so easy when you say it, but oh-so-hard to put into practice.  There are typically also ways to hand over assets (and control of a company) without triggering gift taxes (or so I understand, we don't tax gifts in Canada)...