Inheritocracy per Rupert

[rcjordan]

>Inheritocracy

Oooo, a good new word. I'll be appropriating it.

"As the oldest Baby Boomers turn 80 this year, many people are taking stock of how this generation has impacted American life.

One fact is clear: They've accumulated more wealth ($85 trillion by some accounts) than previous generations of older Americans."

Are Baby Boomers wealthier than previous generations of older adults? | Pew Research Center
https://www.pewresearch.org/short-reads/2026/02/11/are-baby-boomers-wealthier-than-previous-generations-of-older-adults/?cb_viewport=desktop

[Rupert]

In the US, it's easier to hang on to it through generations, I believe.  The Uber wealthy in the UK can, as they put it in "Moneyland" but the rest of us struggle with inheritance tax.

It was a "Radical" podcast I heard it on the BBC again. Excellent if you are interested.

[rcjordan]

>In the US, it's easier to hang on to it through generations, I believe.

We had a significant, lower-threshold inheritance tax until the 1980s. It is unpopular even among those who will never be affected by it.

The rate was still as high as 70% with only a $175,000 exemption in 1980, when President Reagan sought passage of The Economic Recovery Tax Act of 1981. That act dropped the top estate tax rate from 70% to 50% and increased the deduction from the estate tax (in the form of a tax credit) to $600,000 by 1987.

In 1997, Congress passed The Taxpayer Relief Act, which would have increased the exemption over time to $1 million in 2006.

However, The Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA, AKA the "Bush Tax Cuts") increased the estate tax exemption to $3.5 million in 2009, and then repealed the estate tax for 2010.

On December 17, 2010, President Obama signed The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which reinstated the estate tax, but with a $5 million exemption and a 35% maximum marginal rate.

https://www.posticbates.com/blog/where-did-the-estate-tax-come-from

[Rupert]

In the UK, a couple might manage £1m untaxed if they own a family home, and so its hard to stay under that in London, and some other hotspots, with just the house value.

[ergophobe]

>  70% with only a $175,000 exemption in 1980

One of my conservative friends says his solution to wealth inequality and tax avoidance is simply this: 50% inheritance tax from the first dollar. No step up in basis** either, which is one of the stupidest things ever. Like he says, it's not like you can't pass money to your kids. You just can't pass $27 million dollars tax free to your married child and spouse.

**step-up in basis. I know that those of you who don't live in the US are at least vaguely aware of how complex and messed up our healthcare system is. But the tax system might be worse.

Normally, if I hold an asset (let's say equities) that appreciates from $100 to $200, I owe capital gains tax on the $100 of gain. For most people, that will be 15% but at its highest it would be 20%, much less than the tax on wages in most cases. So as a general rule, a person who doesn't work for her money pays less tax than a person who does.

But here's the crazy part - if you pass that asset to your kids, the "tax basis" gets stepped up. So that asset you bought for $100 that was worth $200 when you passed it to your kid is now valued at $200 and your kid only pays capital gains if they sell above that number. So the tax revenue on that $100 you made from your investment evaporates.

So not only can you pass $13mm to each kid tax free, they also get a break on an asset that has appreciated

#inheritocracy

[rcjordan]

IRS Revenue Ruling 2023-2: No step-up in basis for assets in Irrevocable grantor trust

https://www.halaw.com/news/irs-revenue-ruling-step-up-basis-irevocable-grantor-trust

Scroll down to the Babe Ruth Card example

Going to ding the current distribution of the trust I just liquidated some, though I did a barrel-roll and minimized it a bit.

[ergophobe]

And that's why a financial planner told us never to put brokerage accounts, bank accounts, IRAs, etc in a trust. He said to just designate beneficiaries at the brokerage/bank for direct transfer which gets both the step up and is outside of probate.

Having no kids, I don't actually care how much tax gets paid on our estate. In ideal world, I would spend most of it before I die anyway. But not all of it

[Rupert]

In an IDEAL world, surely ALL of it?

[Rupert]

Missed my picture: https://gemini.google.com/share/276403e0c454

[rcjordan]

>In an IDEAL world, surely ALL of it?

I've witnessed money ruining people, particularly kids growing up in the bottom rungs of the top 10%. Families with their own businesses and assets and a wisp of generational wealth have a skewed view of work-life.  They get to take off work to go skiing or travel, for instance. It's a shock when they go to work outside the family umbrella and have to punch the clock or only have a week or two of vacation time.

I purposely did not employ my kids when they were in high school. I only stepped in a few times when they were in college and fixed it with a checkbook, trying to set them back on course.  But now, they're in middle-age, doing well on their own, and it looks like we may have money left over.  So, I'm OK with leaving the 5 of them with what we don't spend.  The future Debbie sees says they're going to need it.

[rcjordan]

>college

There are ways to spoil them, though.  None of them had to have student loans, we bank-rolled everything.  I do know that at least one daughter ran up student loan bills anyway, her boyfriend -now husband- apparently did much the same, much to their regret later.

[ergophobe]

>> In an IDEAL world, surely ALL of it?

Do you remember (or did you ever see) the "Deep Thoughts, with Jack Handy" segments on SNL? My favorite (said with a wispy, airy, solemn voice appropriate for conveying life truths):

"When I die, I hope that people think back on me and say, 'Boy, that guy sure owed me a lot of money.'"

But yes, in an ideal world, I would die with zero, but that's a hard needle to thread and if I'm going to miss the needle, I want it to be on the high side.

>> None of them had to have student loans

I had some loans after grad school, but finished undergrad debt-free. It gave me tremendous freedom. It's a considerable gift in the context of American education.

[buckworks]

>> die with zero

I have told my sons that my goal is to leave enough $$$ to pay for them to go out for pizza and beer after my funeral.

More seriously, one of our goals is to help grandkids (we have twelve) with higher ed costs. The pattern that has been evolving is to pay for one course each year towards our oldest granddaughter's university degree. We have told the others that when they get to the point of paying tuition we'll chip in the same even if they're heading somewhere other than university. It would be a modest practical help and I'd also hope it would boost their confidence to know that we think they're worth investing in.

The line to walk is to give some help without creating expectations that would undermine their self-reliance.

[Rupert]

Education is always a life lifter.  However, in the UK, a university degree no longer holds the same wage premium it did in my day.
But I do believe it can be a good life experience, but so can a year of travelling dont you think?

I don't yet have the joy of Grandkids, and certainly not going to suggest it to Lucy yet But yes, my sister sees it the same way.

I see plenty of old folks in the UK, who are currently supported by our system. They sold the house, went on holiday, and are now in their 90s (usually on their own) and are wealthier (income) than they have ever been, as outgoings are so low. (council bungalow)


So we do get caught in the UK if you overspend at the end. Its not pretty, but it is there.

[Brad]

>life lifter

Somebody, explained a liberal arts university degree to me (back when I was at Uni) as being more about finding the right questions which will lead you to research the answers.  The plural 'answers' is important because the Big Questions in life generally have more than one answer.  The point is it's a different way of thinking, rather than just learning facts by rote. 

You start seeing all those grey areas and things get complex.