Should Inheritance Be a Windfall?
Inheritance. It’s a concept as old as time. People die. They leave their stuff behind. Typically those closest to the deceased receive the property.
Throughout history, however, there have been many types of inheritance systems. Some of those systems provide for common ownership. However, for those systems where individual property rights are lifted up—like the United States, the concept of inheritance was deemed necessary to allow for the continuity of enterprise. For instance, in order for the family farm to continue, an inheritance to future family operators was necessary.
Similarly, in those systems where individual ownership is encouraged, it should also be the right of the owner to make the decision on who will inherit. However, the need for continuity has been balanced with preventing wealth from being concentrated only in the hands of a few. That’s the purpose of the estate tax—preventing an overconcentration of wealth.
But here’s the question: what happens if there is no need for continuity of enterprise, i.e., the family farm? Or even what happens if the family business won’t be passed on to the family? What happens if the business will be sold and only cash will be passed on?
Stated differently, what happens if the inheritance is simply a windfall with no tie to a business, a farm, or even a set of family values? Is that a good idea? While the estate-tax laws provide some curb to passing on too much wealth, the reality is that the decision on how much wealth to pass on still rests in the hands of the will or trust writer.
The issue of windfall is relative. For many small estates, there really is little question about who should inherit or how much. Just pass it on. But what happens if the amount of the inheritance becomes far beyond what any one person could possibly put to use in a lifetime? And perhaps that is the question: will it be put to use, or will it simply provide a lifestyle of no work?
Of course, a windfall may similarly result when the inheritance is put in the hands of one incapable of using the inheritance—whether through character or competence.
This question of windfall in an inheritance should give pause as estate plans are made.