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Inheritance and Wealth in America

Inheritance and Wealth in America

Edited by

ROBERT K. MILLER, JR.

AND

STEPHEN J. McNAMEE University of North Carolina at Wilmington

Wilmington, North Carolina

Springer Science+Business Media, LLC

Library of Congress Catalog1ng-1n-Publ1catIon Data

I n h e r i t a n c e and wealth In Anrerlca / e d i t e d by Robert K. M i l l e r , J r . and Stephen J. McNanee.

p. cm. Includes b i b l i o g r a p h i c a l r e f e r e n c e s and index. ISBN 978-1-4899-1933-5

1. I n h e r i t a n c e a n d ' s u c c e s s l o n — U n i t e d S t a t e s . 2. Wealth—United S t a t e s . I . M i l l e r , Robert K., 1948- . I I . McNanee, Stephen J., 1950-HB715.I54 1997 330.1 ' 6 ' 0973—dc21 97-35298

CIP

ISBN 978-1-4899-1933-5 ISBN 978-1-4899-1931-1 (eBook) DOI 10.1007/978-1-4899-1931-1

© 1998 Springer Science+Business Media New York Originally published by Plenum Press, New York in 1998

Softcover reprint of the hardcover 1st edition 1998

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Contributors

RONAlD CHESTER • Professor of Law, New England School of Law, 154 Stuart Street, Boston, Massachusetts 02116

REM! P. CUGNET • ORSTOM, Institut Franc;ais de Recherche Scientifique pour Ie Developpment en Cooperation, 213 Rue La Fayette, 75480 Paris, France

MARTHA BRIITON Eu.ER • Internal Revenue Service, p.o. Box 2608, Washing­ton, D.C. 20013

JOAN R. GUNDERSEN • Dean of Social Science Division, Elon College, Elon College, North Carolina 27244

PETER DOBKIN lIAu. • Program on Non-Profit Organizations, Yale University, 88 Trumbull Street, P.O. Box 208253, New Haven, Connecticut 06520

NANCY A. JIANAKOPLOS • Department of Economics, Colorado State Univer­sity, Fort Collins, Colorado 80525

BARRY W. JOHNSON • Internal Revenue Service, P.O. Box 2608, Washington, D. C. 20013

GEORGE E. MARcus • Department of Anthropology, Rice University, Houston, Texas 77251

PAUL L. MENCHIK • Department of Economics, Michigan State University, East Lansing, Michigan 48824

v

vi CONTRIBUTORS

ROBERT K. MILLER, JR. • Department of Sociology and Anthropology, Univer­sity of North Carolina at Wilmington, North Carolina 28403

STEPHEN J. McNAMEE • Department of Sociology and Anthropology, Univer­sity of North Carolina at Wilmington, North Carolina 28403

JEFFREY P. ROSENFElD • Department of Sociology, Nassau Community Col­lege, Garden City, New York 11530

Preface

The transfer of wealth from one generation to the next is a basic fact of social life that involves key issues that strike at the core of social science - who gets what and how much under what conditions, producing what effects. Inheri­tance is an integral component of family, economic, and legal institutions, and a basic mechanism of class stratification. It is widely believed that most modem industrial societies, including American society, operate as meritoc­racies. Much is known about the processes of individual attainment and social mobility within these systems. However, relatively little is known about inheritance as the other different, yet fundamentally important, way that valued resources are distributed. What information on inheritance that is available is scattered among several academic disciplines and is largely in­accessible across their boundaries. This collection of original essays is in­tended as a general, multidisciplinary, and nontechnical resource that brings together summaries of the most recent work on the small but growing body of literature on inheritance from a variety of disciplinary perspectives, including economics, sociology, history, law, and anthropology.

In the first chapter, we provide an overview of relevant issues related to inheritance and extended summaries of the remaining chapters. In Chapter 2, Ronald Chester-author of the award-winning Inheritance, Wealth, and Society-presents an interpretive history of inheritance in American legal thought. Next economists Paul L. Menchik and Nancy A.Jianakoplos critically review the literature on the economics of inheritance at the household and societal levels. In Chapter 4, Barry Johnson and Martha Britton Eller of the Internal Revenue Service present a detailed and interpretive history of federal taxation of inheritance and wealth transfers in the United States. In Chapter 5, an historical case study, Joan R. Gundersen provides a detailed comparison of the place of women in inheritance in VIrginia and New York from 1700 to 1860. In Chapter 6, sociologist Remi P. Clignet reviews the literature on the

vii

viii PREFACE

impact of ethnicity on inheritance practices. His work illustrates the continu­ing difficulties of conceptualization and measurement of ethnicity, of separat­ing the effects of ethnicity from other variables, and, most important, how little we actually know about the effects of ethnicity on inheritance practices. In Chapter 7, Peter Dobkin Hall and George E. Marcus examine the emer­gence of dynastic wealth and philanthropy in Boston, arguing that these practices have formed the basis of the American pattern in which philan­thropy legitmates dynastic wealth holding. In Chapter 8, sociologist Jeffrey P. Rosenfeld takes a look at will contests, examining the conditions under which they are likely to occur and why they remain so infrequent despite major demographic, socioeconomic, and familial structural changes. In the final chapter, we return to a more general discussion of inheritance and its implica­tions for stratification.

This book is intended as a resource volume for anyone interested in the topic of wealth and inheritance. The book may also be useful as a supplemen­tal text for courses in stratification, kinship, macroeconomics, and other related areas that in some way deal with the process of the transmission of wealth and privilege across generations.

We have numerous intellectual debts, most of which cannot possibly be acknowledged here. Most generally, the University of North Carolina at Wll­mington provided institutional support for the completion of this project. We also acknowledge the generous support and patience of our collegues in the Department of Sociology and Anthropology, who listened as we "thought aloud" while we worked our way through our first experience as editors. We thank the contributors for their fine chapters and their cooperation in meet­ing our deadlines. We especially thank Jeffrey Rosenfeld for his positive spirit, unwavering support, and sound advice on the project as a whole. We also would like to acknowledge the excellent work of Eliot Werner and the edi­torial staff at Plenum, who have made putting this work together as painless as possible. We would like to thank our wives, Mary Susan Miller and Christine McNamee, for their ongoing support of our professional endeavors. Finally, we would like to dedicate our efforts on this project to our respective children­Emory Miller, Gregory McNamee, and Catherine McNamee-who, unfortu­nately, stand to inherit little wealth from us. Each, however, has inherited from us a full measure of parental love which, in the end, is all that most of us can hope to receive and bequeath.

Contents

1. The Inheritance of Wealth in America 1

Robert K Miller, fr. and Stephen J McNamee

Introduction ............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Inheritance in American Legal Thought . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Economics of Inheritance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Federal Taxation of Inheritance and Wealth Transfers ............. 8 Women and Inheritance ......... ................ ............. 11 Ethnicity and Inheritance ..................................... 14 Dynasty, Philanthropy, and Inheritance ......................... 15 Will Contests ............................................... 18 Inheritance and Stratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 References ................................................. 22

2. Inheritance in American Legal Thought 23

Ronald Chester

American Inheritance: A Civil, Not a Natural, Right . . . . . . . . . . . . . . . 23 Legal Rationalism and the Jeffersonians, 1745 -1860 .............. 25 Legislative Control of Inheritance through Regulation and Taxation,

1860-1986 ............................................... 29 Hodel v. Irving: Natural Rights Trirnphant? . . . . . . . . . . . . . . . . . . . . . . 32 The Reaction to Irving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ix

x CONTENTS

An Analysis of Irving Limiting Its Radical Potential ............... 36 Conclusion ................................................. 39 References ................................................. 42

3. Economics of Inheritance 45

Paul L. Menchik and Nancy J Jianakoplos

Introduction ................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Economic Concept of Inheritances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Inter Vivos Transfers versus Bequests ........................ 46 Human versus Nonhuman Wealth............................ 46 Intended versus Unintended Bequests ........................ 47

Inheritances at the Economywide Level . . . . . . . . . . . . . . . . . . . . . . . . . 48 Frameworks for Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Empirical Evidence ........................................ 51 Policy Implications ........................................ 52

Inheritances at the Household Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Frameworks for Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Empirical Evidence ........................................ 55 Policy Implications ........................................ 55

Summary and Conclusions ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 References ................................................. 57

4. Federal Taxation of Inheritance and Wealth Transfers 61

Barry W. Johnson and Martha Britton Eller

Introduction: Inheritance and Taxation ......................... 61 Historical Overview ......................................... 62

Inheritance in Early America: English Foundations . . . . . . . . . . . . . . 62 The Stamp Tax of 1797 .................................... 64 The Tax Act of 1862 ....................................... 64 Inheritance Taxation and the Industrial Revolution ............. 66 Estate Tax of 1898 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Prelude to the Modern Estate Tax, 1900-1916 . . . . . . . . . . . . . . . . . 71

The Modern Estate Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

CONTENTS D

The Revenue Act of 1916 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Significant Tax Law Changes: 1916 to the Present. . . . . . . . . . . . . . 74 Current Estate Tax Law .................................... 79

Transfer Taxes and Estate Planning .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Current Transfer Taxation: Criticisms and Proposals .............. 82 Conclusion ................................................. 88 References ................................................. 89

5. Women and Inheritance in America: Virginia and New York as a Case Study, 1700-1860 91

Joan R. Gundersen

Background ................................................ 93 Law in Colonial New York and Virginia ......................... 95 Alternate Traditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Colonial Wills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Inheritance during the American Revolution .................... 104 megitimacy, Adoption, and Inheritance ......................... 106 Emancipation and Inheritance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Antebellum Vrrginia ......................................... 108 New York in the New Republic ............................... 109 Conclusions ................................................ 113 Afterword .................................................. 114 References ................................................. 117

6. Ethnicity and Inheritance 119

Remi P. Clignet

Prerequisites to the Impact of National Origin or Ethnicity on the Formation and the Transfer of Wealth in Contemporary America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Ethnicity and Ownership ..................................... 123 Ethnicity, National Origin, and Testamentary Behavior ............ 125 Ethnicity, National Origin, and the Treatment of Heirs ............ 127 Conclusions ................................................ 132 References ................................................. 136

:xii CONTENTS

7. Why Should Men Leave Great Fortunes to Their Children? Dynasty and Inheritance in America 139

Peter Dobkin Hall and George E. Marcus

The Revolution in American Law, 1780 -1880 . . . . . . . . . . . . . . . . . . .. 141 Law and Institutions ......................................... 145 Trusts, Endowments, and the Rise of Urban Elites, 1820-1880 ..... 147 Wealth and Charity: The Public Dimensions of Private Wealth. . . . .. 153 The Bostonization of American Wealth, 1880-1990 . . . . . . . . . . . . . .. 158 Dynastic Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Reprise .................................................... 164 References ................................................. 169

8. Will Contests: Legacies of Aging and Social Change 173

Jeffrey P. Rosenfeld

Introduction ................................................ 173 New Roles, New Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Estate Litigators: A Snowball Sample ........................... 176 Social and Demographic Contexts of Estate Litigation . . . . . . . . . . . .. 176

Changes in Family Structure ................................ 177 The Impact of Divorce and Remarriage ....................... 178 The Impact of Chronic Illness and Long-Term Care .. . . . . . . . . . .. 179 New Roles and Lifestyles for Elderly People ................... 180 Homophobia and the AIDS Epidemic . . . . . . . . . . . . . . . . . . . . . . . . . 182 Other Perceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Will Contests: Frequency and Net Worth. . . . . . . . . . . . . . . . . . . . . . . . 183 Incidence of Estate Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 183 Size of Estates Involved in Will Contests ...................... 184

Motivation for Will Contests .................................. 185 Social Controls on the Inheritance of Wealth: Judicial, Economic,

and Social ................................................ 187 Judicial Attitudes: Proponents' Claims Upheld ................. 187 Economic Reality: The High Cost of Litigating ................. 188 Socially Unacceptable Behavior. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

CONTENTS xiii

Toward an Even Less Litigious Future: New Forms of Communication in Families ............................... 189

Appendix: Interview Schedule for Estate Litigators ............... 190 References ................................................. 190

9. Inheritance and Stratification 193

Stephen J McNamee and Robert K. Miller, Jr.

Inheritance and Stratification Outcomes ........................ 193 Inheritance and Stratification Theory ........................... 196 Toward a Theory of Inheritance ............................... 199

Inter Vivos Gifts .......................................... 201 Intestate ................................................. 201 Family ................................................... 201 Class .................................................... 202 Race and Ethnicity ........................................ 203 Gender.................................................. 203 The State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 204

Trends and the Future of Inheritance . . . . . . . . . . . . . . . . . . . . . . . . . .. 204 Policy Implications .......................................... 207 References ................................................. 211

Index.................................................... 215