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The Jewish Ethicist: Estate Tax

The Jewish Ethicist: Estate Tax

Is it proper to tax bequests?

by

Q. Is it fair to tax bequests?

A. Estate taxes are among the most controversial levies in our economy. Many people believe they are the ideal tax. Middle class individuals earn most of the income, because they are most of the people. But their share of bequests is far lower, since by definition only wealthy people accumulate large fortunes. So bequest taxes are a highly progressive tax, meaning that wealthy people pay a larger share.

Furthermore, many people view it as a tax on unearned income, since the heirs didn't do anything to deserve it. So it is also a fair tax.

Finally, the assumption is that people accumulate money mostly to enjoy the well-being or the honor and power it confers, so that taxing estates doesn't discourage initiative very much. So it is also an efficient tax.

Other people view the estate tax as the most unfair tax possible. Government has a right to tax economic activity, since they contribute to its productivity. So personal and business income taxes are acceptable. But after all these taxes have been paid, what right does the government have to tax the same money yet again, merely because the original earner has passed away?

Bequests are further viewed as one of the main incentives for earning and saving. These individuals view an estate tax as something close to arbitrary confiscation.

From all the sources I have found, the Jewish view is closest to the first approach, the one that legitimates inheritance taxes.

It is true that our law gives bequests a special status. We find this in the Torah, which warns a father not to discriminate in inheritance against the son of a less-favored wife (Deuteronomy 21:17). We find in later legal sources that a son is like a continuation of the father, so that a bequest is not considered completely like a transfer. Finally, we find that the Code of Jewish Law rules that the best policy is to leave most of the estate to the offspring, leaving a meaningful minority for charity. (1)

However, as we wrote in a previous column, Jewish tradition does not particularly encouraging saving up during life specifically in order to bequeath property to offspring. "Rav said to Rav Hamnuna, If you have wealth, enjoy it. For there is no enjoyment in the grave, and no leisure after death. And if you should say, I must leave it to my children... people are like plants: as these flourish others wilt." (2) Rather than hoarding, parents should help their children to the best of their ability during their lifetimes; ultimately, it is the responsibility of the child to find a flourishing livelihood.

And the custom has been to consider bequests as income for all practical purposes, especially as relates to tithes and communal taxes. For example, the renowned Enlightenment authority Rabbi Yeshahayu Horowitz writes: "Even if the father was scrupulous his whole life to give tithes, even so now that the son has acquired [the property], why shouldn't he take tithes from what God has given him? (3)

Leaving bequests is an honored tradition in Judaism, and it is certainly proper for parents to help their children while they leave and also ultimately as they leave this world for the next. A confiscatory inheritance tax would certainly interfere with this. At the same time, estates have never been seen as the main reason for saving and accumulation, and modest taxes and tithes on estates have been long sanctioned.

SOURCES: (1) Rema CM 282 (2) Eiruvin 54a. (3) Shela Laws of Charity and Tithes; see also Arukh HaShulchan Yoreh Deah 249:6.

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The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.

The Jewish Ethicist is a joint project of Aish.com and the Business Ethics Center of Jerusalem. To find out more about business ethics and Jewish values for the workplace, visit the Business Ethics Center of Jerusalem at www.besr.org.

Published: January 21, 2006


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Visitor Comments: 5

(5) David Talbot, January 23, 2006 12:00 AM

Estate Tax Rationale

The theory behing the estate tax in the US Tax Code, has more to do with the re-distribution of wealth back to society, than it does with imposing a burden on the beneficiary of an estate.

The tax is imposed on the estate, not on the beneficiary. It is also true, as stated in one of the opinions, that fixed, illiquid assets may have great value in an estate with few if any cash or cash equivalents to pay the tax. That is a situation with family farms, closely held businesses, real property and heirlooms. However, since no tax is imposed by the feds until the estate exceeds $1,000,000 (Maybe it's higher now), most estates in the US are not affected by this tax.

An individual with an estate tax issue should do some simple planning with a competent Estate Planner or Attorney well versed in these matters, as there are several legal ways to insure that all beneficiaries recieve all they are due with a cost to fix the problem a slight % of the tax that might be due in the future.

Comments? Talbotnotes@gmail.com.

Shalom--David

(4) Merlock, January 22, 2006 12:00 AM

Something to Consider...

Often, inheritance isn't in the form of money, but heirlooms, land, etc. Taxing these often requires that the inheritor sells some of the property to get the money, and in this case, the taxes can cost more in emotions than in money. God bless!

(3) Joseef Vleeschhouwer, January 22, 2006 12:00 AM

illogical conclusion.

you write: "estates have never been seen as the main reason for saving and accumulation, " Undersigned is not aware of statistics on this. My own idea is that savings are "for an easy old age" as well as for "in case of need" such as chronic illnesses in old age. And why should my savings be taxed twice?
There is also an important reasoning of our Chachamim, z.ts.l., that explains, that I should give not more than 20 % of my income to Tsedaka per year, because it is like challenging haKadosh Baruch Hu, like saying, If I become needy, YOU take care of my needs, whereas, if I save at least 80 % AND invest it wisely, next year the 10 till 20 % may well be from a HIGHER amount, so tsedaka would be larger. And if I do not invest my savings, but spend (part of) it, by spending it other people earn, and what is bad in that?
So, NO inheritance taxes, please.

(2) lamberth, January 22, 2006 12:00 AM

Thanks. I'M LLIBERAL.

(1) al, January 22, 2006 12:00 AM

function

It is not the function of government to decide whether or not someone has "earned the right" to something. It is the function and perogative of the person who owns it, in other words, the "bequester." Besides, we have no way of knowing that the person receiving a bequest did not "earn" it as you say.
The person that is leaving the money most certainly did earn it.
People should realize that to put a gun in someone's face and take their money, or other possessions, is wrong,it is theft, and it is SIN, whether it is done by a thug wearing a mask, or an Ivy League politcian in a silk suit. Then maybe we, as religious, will stop cloaking thievery in pious platitudes.
sincerely and humbly submitted
al puglisi

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