Cats and Dogs, and "Sensible" Bequests-Becker

Leona Helmsley's bequests of $12 million to her dog, and several billion dollars to the welfare of dogs in general, are highly unusual, eccentric, and strange. Should these and similar bequests be allowed? No doubt $12 million is far more than can be spent on a single dog in any reasonable way, but is that the right criterion to use? An analogy with huge bequests to individuals is appropriate. The number of billionaires in the world has been growing rapidly rapidly, and a large fraction of these are in the United States. Most of them will leave hundreds of millions, and even billions, of dollars to their spouses, children, and grandchildren. Some of these recipients may recklessly go through these huge bequests in a short time, but is there any sensible way heirs can spend billions, or even hundreds of million, of dollars in their lifetimes? It is difficult for the rest of us to imagine how to spend that much, even with purchases of private planes, several expensive homes, and other luxuries. Spend these sums they may, but not in ways that would generally be considered useful or sensible. Similarly, I have no doubt that it is possible to spend $12 million on Helmsley's dog, but that would involve expenditures that most would consider at least as foolish and wasteful as the way some very wealthy heirs spend their much larger inheritances. This type of reasoning would explain why the Uniform Trust Act authorizes judges to reduce bequests to pets to a so-called maximum comfort level. Yet, with a couple of exceptions, I do not believe that trustees or anyone else should have the power to decide whether the nature and amounts of bequests for particular purposes are excessive and inappropriate. Respecting individual preferences, no matter how idiosyncratic, is one important measure of a free society, even when those tastes relate to bequests and inheritances. As Posner said, peoples' tastes take many forms, and it is not possible to prove objectively that some preferences, such as the huge bequest to Helmsley's dog, are much worse than even larger bequests to worthless children? One traditional exception to the principle of accepting bequests relates to those bequests made by persons judged to be incompetent, either because of demonstrated senility or mental illness. Such an exception, when used sparingly to avoid abuses, can be useful since bequests made by mentally incompetent individuals may well have no rational basis, not even eccentric ones. Another exception to the rule of allowing bequests, no matter how strange or eccentric, would concern bequests that violate laws. For example, a bequest to give guns to individuals would be disallowed if there were stringent gun ownership laws. Similarly, a bequest to promote white supremacy, or the employment only of males, would be judged to violate anti-discrimination laws. Respect for individual preferences does allow bequests to be taxed. To reduce the importance of bequests that make little sense, Posner proposes to tax large bequests given to charitable organizations. Yet it is not bequests that raise questions about appropriateness, but inheritances. A large bequest divided among many recipients, including many individuals and charities, does not raise anywhere near the same ethical or other problems as the same large bequest given to a few children or charitable organizations. The United States' estate tax and that of many other countries is wrong-headed because they tax bequests rather than inheritances. The case for making charitable organizations exempt from estate, inheritance, and other taxes that apply to individuals and for-profit businesses is that these charities decentralize giving to hospitals, universities, the poor, and for many other purposes that are not readily made self-financing. Absent private charities, the financial support of these purposes would be concentrated, that is monopolized, in the hands of governments, as it is in countries that do not exempt foundations and charities from estate and other taxes. The major concern about private charities and foundations is not that they are too large, but that their leaders often perpetuate their organizations beyond any reasonable duration, partly by transforming their goals over time. I believe a case can be made for keeping the tax exemption in place, but changing present laws to require charities and foundations to have limited durations, perhaps 30 years. That is, to introduce a kind of sunset provision for private charities and foundations. If they stayed in business beyond that time period, they would then be subject to significant wealth and income taxes.

Comments

[dellis]

At a time of exploding deficits and a long-term fiscal crisis caused by demographics and poorly-designed senior entitlement programs, isn't it time that we explored eliminating the charitable deduction altogether? It costs the US treasury around $60 billion a year, far more than would be gained by raising the top ordinary income marginal tax rate from 35 to 39.6%. The benefits only go to those who itemize, who tend to be people with high calendar year ordinary incomes. And many organizations qualify as charities when they really advance partisan interests, help get the donor's children into elite colleges, help provide hospital services to wealthy neighborhoods, or are marketplace competitors like National Geographic. Giving to charity is a virtue, but must the U.S. taxpayer subsidize this virtuous behavior?

[Richard]

Dr. Becker equates a large bequest to an animal to a large bequest to a human being.

In terms of consumption spending, I suppose the equation holds. In either case, there is a limited amount of utility to be gained from consuming multiple millions or billions of dollars.

But a human recipient is able to do at least two things with money, of which an animal is incapable: investment and charitable giving.

A human being who inherits billions can invest most of that wealth in (we hope) productive activities. He or she can also give it away (although the social benefits of such giving are not an unalloyed good, as Dr. Becker has explained).

Therefore, it seems to me inappropriate to limit a bequest to a human being in the same manner as a bequest to an animal.

[Mike Hunter]

Respecting individual preferences, no matter how idiosyncratic, is one important measure of a free society, even when those tastes relate to bequests and inheritances.

Bingo. This is a question of Fundamental property rights. If Leona Helmsley wants to bequeath her money to a dog, use it to make a public pool filled with jello, or use it to build a giant nacho cheese fountain in the middle of New York City; then that is her business. Assuming that she doesn’t transgress on someone else’s person or property in the process.

The idea that the government shouldn’t allow her to use her money as she wanted; because some government bureaucrat subjectively determined that it is wasteful is ludicrous.

[Jake]

While it is unclear whether he adequately distinguishes between public and private charities, so far as tax treatment goes, Dr. Becker's views are better articulated and more persuasive than Judge Posner's on this topic.

[Caring for the Future of the Human Race]

It is very upsetting to read Becker's arguments. Mrs. Helmsely only accumulated vast wealth because we the people created a system that allows it. There is something very wrong with a society that worships "fundamental property rights" and is unable to create a system that advances the longterm interests of its members and of the planet they inhabit.

[Caring for the Future of the Human Race]

It is very upsetting to read Becker's arguments. Mrs. Helmsely only accumulated vast wealth because we the people created a system that allows it. There is something very wrong with a society that worships "fundamental property rights" and is unable to imagine a system that advances the longterm interests of its members and of the planet they inhabit.

[Constructively Reasonable]

Similarly, a bequest to promote white supremacy, or the employment only of males, would be judged to violate anti-discrimination laws.
I wonder why this is so. Certainly white supremacy and sex discrimination in the work place is terrible and a blight on society. Yet, if we do believe in property rights, and the rights of unpopular groups to express their drivel and hatred, why cannot a KKK member direct his wealth as he sees fit?
The reason why I see these laws as a problem is that sometimes churches are criticized for their stance against the morality of homosexuality. I could certainly think of other examples too, but homosexuality came to mind first. So, if we allow a sort of viewpoint discrimination by judges in probate, doesn't the system then go against the principles of liberty?

[a]

How does one define and quantify the worth of children? Just curious.

[Jack]

"Caring" "Mrs. Helmsely only accumulated vast wealth because we the people created a system that allows it. There is something very wrong with a society that worships "fundamental property rights" and is unable to imagine a system that advances the longterm interests of its members and of the planet they inhabit."

..... The longer this thread goes on the more I wonder if anyone can direct the profits of their lifetime to "good works" from the grave. Though Buffet and Gate's efforts seem admirable and beyond reproach today, what will happen a generation or so in the future with as "professional" board members and perhaps less thoughtful third generation offspring manage the trust?

It seems obvious that we're sowing the seeds of future political power of the sort enjoyed by England's lords and large property owners and trusting more to luck than seems prudent that their goals and that of our democracy will be close to the same.

[Caring for the Future of the Human Race]

Jack, if I'm understanding your comment, you are skeptical of bequests to nonprofit organizations. I would argue that nonprofits with flexible policies have had enormously positive impact. The Howard Hughes Medical Institute, Andrew W. Mellon Foundation, Ford Foundation, Alfred P. Sloan Foundation, and the Rockefeller Foundation are examples. These organizations demonstrate the value of tax incentives to stimulate bequests. By and large, pools of capital in such foundations are not used inappropriately and they seem to evolve beyond the parochial and sometimes odd or wrong-headed views of their benefactors.

[Henry]

@ Caring for the Future:

You say that the "only" reason Mrs. Helmsley was able to become rich was the system we've created (by which I assume you mean capitalism). While Helmsley isn't a particularly defensible person, I disagree with the implication that all rich people owe their fortunes entirely to the system.

Bill Gates, for example, has created huge value for society. Even though I personally refuse to use Microsoft products, I can't deny that his company has brought fundamental innovations in computing to a wider audience. Steve Jobs might be an even better example - he is someone who has become very rich as a result of his ability to drive innovation. Perhaps these people would not have accomplished so much under a different system, but in that case everyone would be worse off - not just Bill Gates and Steve Jobs.

I think this is an important point in the debate about inheritances. If you truly believe the rich owe everything they have to society, then of course we should limit their ability to spend their wealth frivolously. But to the extent that the wealth of the wealthy is due to their creation of value (which they have traded freely to others for money), then society has less of a claim on their money.

[Jack]

Caring: I'm not sure where I stand. I'd LIKE to think that a functioning participatory democracy would guide most of our public (communal?) priorities. But! it's clear that that's a bit of a dream.

I'd agree that the foundation you mention do good works. Further, I'd agree that it IS a good work for those passing to designate some or all of their wealth to their choice of good works, instead of perhaps to their offspring.

Then, I get to the "tax incentive" part in which our federal government is contributing nearly 50% with our having little to say about the uses other than the seemingly broad guidelines that allowed the Helmsley deal and the massive funding of programs I'd think pretty far from the general consensus of priorities. I'd say that's frivolous use of the charitable exemption and a loophole that should to be closed, ie, that she could do as she pleases with "her" money after paying estate taxes.

I forgotten the names of the proponents, but in the original debates about estate taxes one of the functions was that of purposely paring down family fortunes and the worrisome political power that would be conveyed by "birthright". That continues to concern me and its obvious that along with the good works of the Rockefellers, and others that a great deal of political power is conveyed along with the potential for good works. The good with the bad?

[Martin]

I do not understand why people should be given more self-commitment help by the government when dead than when alive.

There is no law that makes individuals able to commit large parts of their wealth irrevocably to a particular dog while alive. For example, say I, while alive, would want to commit to spend $12 million on my dog in the future. I could certainly write all kinds of contracts with dog service suppliers, but I could always renegotiate (Forget about the dog, you guys keep $6 million and I take the other $6 million). True, a corporation or similar institution could probably offer such commitment services but for some reason there is no such thing. Or tell me how could she have set aside $ 8 billion while alive to the dog cause? True, Gates moved lots of his money into a charity, but if everyone including Gates realized what they were doing was insane, they could together change their mind. This would not be available if all trusts were always honored, which certainly seems to be a first logical stance following from liberty and private autonomy.

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