The Odd Couple: The Estate Tax and Family Law

• Author: Margaret Ryznar
• Position: Associate Professor of Law, Indiana University Robert H. McKinney School of Law.
• Pages: 523-546

The Odd Couple: The Estate Tax and Family Law

Margaret Ryznar*

TABLE OF CONTENTS

Introduction .................................................................................. 523

I. Taxes on Property Transfers at Death .......................................... 525

A. Taxes Upon Death in the United States ................................. 526

1. The Federal Estate Tax .................................................... 527

2. State Taxes Upon Death .................................................. 529

3. Distinctions Between Taxes Upon Death and

the Income Tax ................................................................ 531

B. Taxes Upon Death Outside the United States ........................ 532

II. The Link Between Family Law & Estate Taxation ...................... 535

A. Incentivizing Family Behavior ............................................... 535

B. The Private Safety Net ........................................................... 540

Conclusion .................................................................................... 546

INTRODUCTION

Besides Benjamin Franklin’s truism that death and taxes are both

certain, another exists: their combination does not eliminate inheritance.1

Copyright 2015, by MARGARET RYZNAR.

* Associate Professor of Law, Indiana University Robert H. McKinney

School of Law. Thanks to fellow visiting academics at the University of Oxford

for conversations on t his topic.

1. Lily L. Batchelder, What Should Society Expect from Heirs? The Case

for a Comprehensive Inheritance Tax, 63 TAX L. REV. 1, 44 (2010) (“Currently

no jurisdiction in the world imposes a wealth transfer tax on the order of 80% to

the largest inheritances and none applies a comprehensive inheritance tax.”).

However, freedom of testation and inheritance also have their limits. See Adam

J. Hirsch, Freedom of Testation / Freedom of Contract, 95 MINN. L. REV. 2180,

2185 (2011). On the contrary, many countries have completely abolished taxes

on property transfers upon death. See David G. Duff, The Abolition of Wealth

Transfer Taxes: Lessons from Canada, Australia, and New Zealand, 3 PITT. TAX.

REV. 71 (2005) (reviewing the abolition of wealth transfer taxes in Canada and

briefly describing the abolition of those taxes in Australia and New Zealand);

Daphna Hacker, Intergenerational Wealth Transfer and the Need to Revive and

Metamorphose the Israeli Estate Tax, 8 L. ETHICS HUM. RTS. 59 (2014)

(summarizing the history of the Israeli estate tax from its inception in 1949 to its

abolition in 1981); Barbara R. Hauser, Death Taxes Around the World in 2013:

Your “A to Zed” Guide on How Other Countries Treat Inheritances, TR. & EST.,

Nov. 2013, at 62 (listing several countries that have abolished the inheritance tax

524 LOUISIANA LAW REVIEW [Vol. 76

Tax rates around the world are not high enough to infringe on a person’s

ability to pass property from one generation to the next, even as dynamic

as the estate tax system can be.2 While some continue to call for

significantly higher estate taxes, with the aim to redistribute property or

generate revenue for the government,3 this aim has proven an elusive goal.

Many arguments justify the continued existence of significant

intergenerational wealth transfers. These include that people will not work

or create wealth, or save it, if the government will be the beneficiary upon

death.4 This Article, however, posits another significant reason that the

inheritance tax is politically unpopular—the family. As long as people

have children, a relatively high estate tax will not be politically viable.

Furthermore, family law illustrates the value placed on the private safety

net provided by families;5 indeed, family law and the estate tax are linked

in this way.

and explaining why they have elected to abandon the tax); Michael Littlewood,

The History of Death Duties and Gift Duty in New Zealand, 18 N.Z. J. TAX’N L.

& POL’Y 66 (2012) (describing the rise and fall of estate taxes in New Zealand);

William H. Pedrick, Oh, to Die Down Under! Abolition of Death and Gift Duties

in Australia, 14 U.W. AUSTL. L. REV. 438 (1982) (detailing the Australia death

duty abolition movement and providing the underlying reasons for the country’s

decision to bar the tax); Vrishti Beniwal, Inheritance Tax Unlikely to be Re-

Imposed, BUS. STANDARD (July 5, 2014), http://www.business-standard.com

/article/economy-policy/inheritance-tax-unlikely-to-be-re-imposed-114070500092

_1.html [http://perma.cc/FK9W-FRT8] (discussing the unlikelihood that an

inheritance tax would be reintroduced in India due to high costs of administering

the tax).

2. See Jeffrey A. Cooper, Ghosts of 1932: The Lost History of Estate and

Gift Taxation, 9 FLA. TAX REV. 875 (2010); Elizabeth R. Carter, New Life for the

Death Tax Debate, 90 DENV. U. L. REV. 175 (2012); see also infra notes 23–25

and accompanying text.

3. See Reginald Mombrun, Let’s Protect Our Economy and Democracy

from Paris Hilton: The Case for Keeping the Esta te Tax, 33 OHIO N.U. L. REV.

61, 63 (2007) (“[T]he estate tax should not be repealed because it is the only tax

that attempts to prevent uncontrolled wealth accumulation, and the potential

damage of permanent repeal to our economy and our democratic system are not

worth the gamble.”); Miranda Perry Fleischer, Theorizing the Charitable Tax

Subsidies: The Role of Distributive Justice, 87 WASH. U. L. REV. 505, 563–64

(2010) (“The notion of equality of opportunity plays a large role in many tax

policy debates, providing one of the most common justifications for the e state tax

and other forms of redistribution.” (footnote omitted)); Matthew B. Gaudin, Note,

The Federal Estate Tax and the National Debt: Why the Debt Forces A Defense

of the Tax, 45 IND. L. REV. 159, 190 (2011) (“[T]he estate tax should be retained,

at least for the foreseeable future, and be used solely to reduce the national debt

or offset increased spending.” (emphasis in original)); Batchelder, supra note 1

(advocating for a comprehensive inheritance tax).

4. See infra Part II.A.

5. See infra Part II.