Sunday, March 26, 2006

Inheritance... or lack thereof

In today's NY Times Week in Review section, there's an interesting front page story about trends in inheritances. Today's baby boomers may be counting on inheriting money from their parents to finance their own retirements, as they have no savings, but most will be disappointed.
The graphs that accompanied the article told the story:
"The total value of all U.S. inheritances has more than tripled..." (from about $60 billion in 1965 to around $200 billion today, in today's dollars)
"...but the value of the median inheritance has fallen..." (from about $42,000 in 1965 to about $29,000 today)
" part because bequeathed wealth is concentrated in a small portion of the population."
The top 2 percent of estates are worth over $782,300
The next 3% are worth $326k to $782,300
The next 5% are worth $244,600 to $326k
So that is the top 10%.
Then 40% of estates are worth $52,200 to $244,600
20% are worth $2,600 to $52,200
And 30% are worth less than $2,600

What this doesn't take into account is that the wealthy people with the largest estates are also probably the most likely to have taken advantage of ways to pass on their wealth to their children before they die, thereby lowering the value of their estates from even higher highs. The article also makes no mention of the estate tax, but in light of these figures, it's amazing to me that so many people make a fuss about it when more than 98% of the population will never have to pay it: the tax only affects estates of more than $1 million in taxable value. (Someone is bound to say "but what about all those family farms lost because of the estate tax?" It just isn't true-- last I heard, even the American Farm Bureau Federation could not cite a single example of a farm lost because of estate taxes.)


Anonymous said...

A friend lost her Father a year ago and was shocked to discover his net estate was worth less than $10,000. She had expected to inherit more than ten times the amount.

Anonymous said...

You said "the tax only affects estates of more than $1 million in taxable value". True, and the exclusion amount will continue to increase until January 1, 2010. In 2010 the estate tax is repealed. Yea!! (at least for one year - it reverts back to $1million in 2011).

Anonymous said...

Keep in mind that frequently a large portion of estate size is in tax-advantaged retirement accounts.

Thus the actual taxable estate size may be much larger than what will come out of the estate.

I'm amazed that people don't make more of a fuss about the estate tax.

I've recently seen the results of a lifetime of toil frittered away in taxes right as the decedent reached retirement age, because of fundamentally unjust treatment of accumulated wealth in retirement accounts.

An estate of more than $1M or $2M isn't particularly large if the bulk of the estate is in tax-advantaged retirement plans. The pre-tax value of these plans is counted toward estate size for estate tax purposes, but in many cases the accounts must be liquidated and are then taxed again.

If one hopes to pass money on to his children, this is a slap in the face for acting and saving responsibly.