Intergenerational Transmission of Property Research Paper

The right of a beneficiary to take property under a will is dependent on the legal power or right of the decedent to transmit this property at death to that beneficiary. This right was recognized relatively recently in Western thought and has often been regarded, at least by the positivist tradition, as having been created for society’s convenience. Natural rights advocates by contrast might consider the right to bequeath an aboriginal attribute of property itself (see Chester 1998b).

In Western society, the legitimization of the right of bequest symbolized the shift from feudal to individualistic conceptions of property. Unknown to the early law of Greece, India, Egypt, Babylon, and Israel, the will was by no means a universal institution. The testamentary conception built upon by Europeans had its roots in Roman law and was resurrected after feudalism by ecclesiastical courts applying Romano-canonical law (see McMurray 1919).

In England the customary right of testamentary disposition was recognized in very early times, but land—the primary source of wealth—could not be willed until after the Norman invasion and the establishment of feudal tenures. Finally, in 1540, the Statute of Wills declared the right of an individual to leave real property to whomever the individual pleased by means of a duly executed will. This statute confirmed a customary right long recognized for personal property (Chester 1982).

Once established, the right of an individual to leave property outside the family had to be reined in by providing protection from disinheritance for certain family members. For example, in England, primogeniture protected the eldest sons of landed decedents until well into the nineteenth century. Common law rights of dower and curtesy for surviving wives and husbands provided them with interests in the land of the decedent (see Chester 1982). Even though English women of the sixteenth, seventeenth and eighteenth centuries could not will property or own it in their own name, it could descend through them. However, married women’s assets were also protected to some extent by courts of equity by means of trusts and other devices, especially toward the end of that period.

Children who were omitted from wills were not protected directly, except those benefiting under primogeniture. However, the wills of their parents were strictly scrutinized to ensure that they had not been left out unintentionally. One English rule derived from Roman law even stated that to cut off an heir ‘without a shilling’ raised a presumption that the testator was legally incompetent to make a will. Thus even in England, the family’s right to inherited property was protected not only when the decedent died without a will (intestate) but to some extent when the decedent did leave such a will (see Chester 1982).

The entrenchment of the right of testation in England was associated with the movement from feudalism, with its emphasis on family and kinship, to free-market capitalism, with its emphasis on the individual. By the mid-nineteenth century, the adult male, Anglo-American owner of both realty and moveable property had nearly unlimited power of testamentary disposition. In contrast, countries such as France, Spain, and Germany on the European continent made the move to capitalism with a right of testation that, even when recognized, was much more sharply curtailed than that in Anglo-America by the requirement of fixed shares for surviving spouse and children.

In the eighteenth and nineteenth centuries, the principal difference between the Continental and Anglo-American systems of succession was the different attitude each displayed toward the right of family members to succeed to the decedent’s property. Al- though the Spanish principle of mandatory heir ship appeared in theory to be a significant curb on the Anglo-American concept of testamentary freedom, in practice the differences were not so marked. This reality stems from two separate phenomena: (a) in the majority of instances free testamentary power among the Anglo-Americans was exercised in favor of those who would be forced heirs under a mandatory system such as that in Spain; and (b) even where testamentary power appears absolutely undiluted, far more people die without wills than with them, resulting in the passage of their property to those who, under Spanish law, for example, would be designated forced heirs (see McKnight 1996).

Spanish lawyers of the eighteenth and nineteenth centuries were trained in the Germanic tradition, which accepted only an extremely narrow testamentary power. Thus, while Anglo-American lawyers thought of both testate and intestate succession, the basic distinction for the Spanish was between those who were forced heirs and those who were not.

What is more, married women in the Spanish system not only had a much more extensive right to property than did those in Anglo-America, but they also had will-making power, which they did not have in Anglo-America. American women, for example, did not gain the power of will-making until the passage of the Married Women’s Property Acts of the late nineteenth century.

In Spain the surviving spouse was also entitled to half of the gains of the marriage under what is today termed the community property system. Most of the property that was the decedent’s alone passed to descendant forced heirs, despite any contrary testamentary provisions, and if there were no descendants, ascendants took as forced heirs, although in smaller shares than descendants. If the decedent died without a will, the estate passed to the forced heirs, or, if none, to other heirs as dictated by law (see McKnight 1996).

French law also maintained forced heirship under the concept of legitim. During the French Revolution, this concept was viewed as a means of eliminating the feudal principle of primogeniture in order to break up feudal estates. There was some relaxation in the strict adherence to forced heirship by the time of the Napoleonic Code, which announced the general French view of succession that is held even today. Under the Code, half of the testator’s estate (after marital property has been distributed to the surviving spouse) was freely disposable if there was one child; one-third if there were two children, and one-fourth if there were three or more children (see McKnight 1996).

In general, since the early fifteenth century, the difference between Continental and Anglo-American views of succession, seen most strikingly in the Hispanic tradition, is that the Spanish adhered to the traditional Germanic tribal concept of familial right to property, whereas the Anglo-Americans took an individualistic view of who should succeed to the decedent’s property (see McKnight 1996). By the mid-nineteenth century, this English individualistic notion had triumphed throughout the USA, with the exception of Louisiana which followed the French law of legitim. The Anglo-American system was, however, tempered by the concept of community property in states with a Spanish tradition and by dower and curtesy (mentioned above) in the others. The former gave each spouse an immediate half interest in any property acquired during the marriage, while dower provided a surviving wife with a life interest in one-third of her dead husband’s real property, and curtesy gave a surviving husband a life interest in all of the wife’s real property.

2. Trusts

A particularly ingenious device for the intergenerational transfer of wealth was developed in Anglo-American courts of equity. Called the trust, it has sometimes been copied in other legal systems, for example that of modern Japan (see International Law Digests 1999). This form of property holding enabled the decedent to pass legal title to a third party who held the property for the benefit of its intended beneficiary. This third party trustee was subject to the equitable interest of the beneficiary, who generally received the income from the property for a period of time up to life. At the end of the designated period, the equitable title of that beneficiary would cease, transferring absolute ownership to that beneficiary or another chosen by the decedent.

The temporary division of legal and equitable title to property in trust allows, among other things, professional management of trust property assets. It also allows decedents to delay the actual vesting of full title to the property for a period of time up to and including a generation or more, during which period a beneficiary may receive a managed stream of income. Trusts in the USA that pay income to a decedent’s children during their lives, and upon their deaths pay the principal to the grandchildren are called generation-skipping trusts. Estate tax advantages of these trusts (achieved because the children never received full title) were cut back by the Tax Reform Act of 1986 and subsequent amendments (which imposed a generation skipping transfer tax (see Johnson and Eller 1998, Dukeminier and Johanson, 1995).

3. Wills And Succession Among Nations In The Twentieth Century

The USA took freedom of testation one step further than did England and the countries of the British Commonwealth. While in varying degrees these nations developed flexible systems of family maintenance to protect surviving spouses and children (at least adult, competent children) from disinheritance, the USA maintained the right of testator to disinherit his or her children completely, even those children who were minors and/or had need. Thus, while surviving spouses in the USA are protected either by the elective share (in ‘common law’ states following the English tradition) or community property laws (in those states following the Spanish tradition), children are theoretically left to the whims of unrestrained individualism.

Although this disparity has been attacked, it has also been noted that flexible concepts such as lack of testator competence, undue influence, and ‘unintentionally’ omitted children indirectly protect surviving children to some extent in most ‘common law’ states (see Chester 1997, 1998 a).

That the USA’s focus on the individual rights of the decedent, even to the exclusion of children and other descendants, is unusual in the world can also be seen by examining the systems of the Soviet Union (before its dissolution) and China. Traditionally, the Soviet law of inheritance did not differ substantially from that of the civil law countries of Western Europe (see Dukeminier and Johanson 1995). Although there was an attempt by the Bolsheviks to change this in their takeover of power in 1918, it failed. Nearly unique in the modern history of humankind, a 1918 Soviet Union law read: ‘inheritance, testate and intestate, is abolished. Upon the death of the owner his property (moveable and immovable) becomes the property of [the state]’ (1 Sob. Uzak., RSFSR, No. 34, item 456, Apr. 26, 1918). This attempt to abolish inheritance proved so unpopular with the people that inheritance was reestablished within four years (see Foster-Simons 1985).

At present, inheritance law in Russia and the republics of the former Soviet Union generally follows the civil law views of Western Europe. In this way, it is similar to the law in modern China (see Dukeminier and Johanson 1995). In that country, if first order heirs (spouse, children and parents) inherit, then no second-order heirs (brothers, sisters, and grand-parents) will inherit. Following a kind of community property system, all property in China acquired during marriage is joint property, unless the marital partners have executed a contract to the contrary (see International Law Digests 1999). Since much of China is still rural and nonindustrial, custom plays an important part in the actual distribution of estates (see Foster-Simons 1985), just as it does for example, in tribal Africa. This distribution depends partly on the law and the terms of any will and partly on the social and economic facts relevant to the intestate, or the testator and his heirs (see International Law Digests 1999).

4. Free Testation And Capitalism

It is tempting to view the relatively free testation of the USA as coincident with that country’s status as the exemplar of capitalism. Except for the elective share (typically one-third) provided for surviving spouses, testation in America is predicated on protecting the free will of the testator. While England and the Commonwealth countries are certainly capitalistic, their laws show, on the whole, more of a socialist’s regard for protection of society (and family) than do those of the USA. While family protection is achieved in these countries by reposing a great deal of discretion in probate judges to ensure family maintenance (as distinguished from the use of fixed shares in the Continental system), this still provides a strong check on the whims of the testator. The governmental intrusion into testation is, of course, even pronounced on the continent where fixed shares for the family are the norm.

In its 1987 decision in Hodel vs. Irving (481 US 1987), the USA Supreme Court even seemed ready to protect constitutionally the right of an individual to transmit property at his death in any manner that he or she chooses. While that decision has been criticized and not extended beyond its facts (which involved government confiscation of noneconomic land parcels descending at the death of American Indians), it symbolizes America’s fierce protection of individualism, even after the individual’s death (Chester 1995, 1998 b). Interestingly, the occasion for that decision was the government’s attempt to save Indians from the disastrous economic effects of the Anglo-American individual property system which had been forced on the various tribes. Without imposition of the notion of individually held property in the first place, functioning Indian tribes, much like the tribes in sub- Saharan Africa, might have continued to treat property, which is chiefly in the form of land, as a family, and by extension community asset, which was never the individual’s to transmit at death in the first place.

5. Implications Of Inheritance And Taxation Policy For Equal Opportunity And The Distribution Of Wealth

Allowing large amounts of capital to pass between generations without significant taxation is problematic for those countries such as the USA which profess a belief in equal opportunity. Taxation of estates and gifts is widely seen as an intrusion on the freedom to transmit property at death—a freedom that Americans particularly seem to cherish. While the American estate and gift tax has high nominal rates, its high exemption levels and numerous loopholes, including a deduction of up to 100 percent for all property left to a surviving spouse, may make it in effect a ‘voluntary tax’ (see Cooper 1979).

Countries such as France and Spain have both an inheritance tax and an annual tax on accumulated wealth. Perhaps not coincidentally, these countries do not have so strong a tradition as does the USA of allowing testators to do almost anything they want to do with their money at death.

Commentators (e.g., see Ascher 1990, Chester 1976, 1982, 1998 a, 1998 b) have noted that the policies of free wealth transmission and equality of opportunity coexist very awkwardly in the USA. Although legal systems cannot control differences in natural ability or the luck of being born into a family that values, e.g., culture and education, they can curb that form of luck represented by inheritance. If equality of opportunity is truly a key goal, then children fortunate enough to have been reared and educated by wealthy parents need not be allowed the additional luck of inheriting their parents’ property. Strong and effective taxation of inheritances would contribute significantly to this goal of equal opportunity.

Whatever the logic of this point of view, in countries like the USA there appears to be little public support for more effective taxation on postmortem (or even lifetime) transmission of wealth to heirs. In fact, at the beginning of this twenty-first century bills in Congress relating to the estate tax generally call for its softening or its abolition. Those supporting such bills argue that low or nonexistent taxation of inherited wealth is good for the economy because it preserves large blocks of investment capital in private rather than government hands. However, it might also be said that untrammeled inheritance saps the initiative both of those who receive it and of those who cannot possibly compete on equal terms with those who do (see Chester 1976, 1982).

6. The Future

In looking toward the future of intergenerational wealth transmission in the twenty-first century, one might begin by considering the changing nature of the family itself. Particularly in advanced capitalist nations such as the USA, the family is showing signs of disintegration. Traditional heterosexual marriages often end in divorce and several forms of nontraditional relationships are being legitimized. Since advanced capitalist nations offer many forms of wealth that are obtainable by individuals, there is no longer a critical need for children to succeed to a parent’s land. Thus, the strict family protection practiced by the inheritance systems of many capatalist nations may seem outdated to some.

US law, unlike that of many nations, does not directly protect children from disinheritance by their parents. However, other nations may not desire to aggravate by such a legal stance the atomization of family and society toward which many of them are already heading. Their common judgment may be that, even in the twenty-first century, some homage to the family, traditional or otherwise, still needs to be paid in the field of intergenerational wealth transfer. Whether the restraints on individualism that such a judgment entails will become the norm as this century progresses remains an open question.

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