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A New Inheritance Tax for Baby Boomers by Horace Cooper

December 9th, 2015
The distribution of Baby Boomers life long assets will represent the world’s largest wealth transfer in all of recorded history.


A New Inheritance Tax for
Baby Boomers
By Horace Cooper

 


The distribution of Baby Boomers life long assets will represent the world’s largest wealth transfer in all of recorded history.

The frequency and complexity of these ongoing inheritance transfers could lead to disastrous results.






So-called “Baby Boomers” should check up on their respective estates.  This group (made up of the seventy-six million American children born between 1946 and 1964) represents the largest near retirement group in America and as they reach retirement age inheritance issues will loom large.

The distribution of Baby Boomers life long assets will represent the world’s largest wealth transfer in all of recorded history. Note that for the first time these transfers will be substantially made up of IRAs and 401(k)s.  Additionally this generation is the first to include predominately dual income households.  Such a change will mean more complicated estate plans in which husbands and wives lifetime incomes are merged together. 

The frequency and complexity of these ongoing inheritance transfers could lead to disastrous results if special care isn’t taken.  So called inheritance and estate planning scams are reportedly on the rise and perhaps even more pernicious is the rise in inheritance related litigation as the ever larger stockpiles of cash and real estate act as a magnet for trouble-makers.

Much of this area of litigation is in unchartered territory.  Unfortunately too many of the pioneers are interested in diverting inheritances rather than seeing to it that they go to the intended beneficiaries and as such they have essentially created a new inheritance tax.  Tragically this new litigation tax on inheritance can potentially affect all us.

Take the famous case of Marshall v. Marshall, a case involving more than a decade of litigation yet still remains unresolved.  In this case even the most carefully crafted estate plan of J. Howard Marshall, II was susceptible to legal shenanigans. Anna Nicole Smith, the widow of J. Howard Marshall, II claimed that even though she had been intentionally left out of her husband's written will and estate plan, she—unbeknownst to anyone else—had been verbally promised a portion of his estate. After a probate trial lasting nearly six months, the jury ultimately ruled against her.

But Smith's legal team proved itself tenacious, and willing to subvert the system. Just before the Texas verdict was issued, they leapfrogged to a federal bankruptcy court in California.  There they were able to get their biggest win - nearly half a billion dollars - by convincing the bankruptcy judge to ignore the course of events and legal arguments covering probate matters in Texas. It's been mostly downhill since then.

The first appeal to the federal district court in California reduced the award by nearly three quarters. Next the case went to the 9th Circuit Court of Appeals. Here Anna Nicole’s legal team lost on every count. The court ruled as a matter of law that the entire dispute should have only been heard in Texas. On appeal to the Supreme Court, the legal team won a narrow victory keeping the case on life support. In the 2006 opinion, the Supreme Court ruled that the 9th Circuit had been overly broad in assuming that this dispute could only be heard in Texas and they sent it back for further review in California, where it remains today.  If the federal court ultimately awards Anna Nicole’s legal team for its efforts all of our estates are in jeopardy.

Win lose or draw, cases like these that most lawyers would have agreed had very limited prospects, ultimately crowd out other deserving cases, rack up hundreds of thousands in legal fees and set an attractive precedent for future abuse.  

This type of litigation abuse will inflict an enormous burden on the inheritance plans of baby boomers.  They and their beneficiaries are taxed directly and indirectly.  Those who are sued directly are forced to pay for attorneys who ultimately recommend that they settle as a way to avoid further legal fees and the risk of an overwhelming jury award. Ironically, a larger portion of these verdicts go to the attorneys rather than to the alleged victims.

And even those that decide not to fight suffer.  Not only will they forfeit their rightful share of the inheritance that their families intended for them, but their local and federal taxes still must be used to pay for the administrative costs of these assaults on the estates of others.   And worse these suits will clog the courts, delay justice for real victims and cost everyone.

Make no mistake, now is a great time to take a look at your estate plan to make sure that it is sound and secure.  Later might just be too late.

For more information on inheritance and estate planning issues, visit his website:  www.HoraceCooper.com.

  Horace Cooper is a writer and legal commentator.
He is also a research fellow with the National Center for Public Policy Research and a senior fellow with the American Civil Rights Union. From June 2005 - June 2007 he was a visiting assistant professor of law at George Mason University School of Law. While at GMUSL his research focus was on U.S. intellectual property rights policy, the role of the United States Supreme Court in the American constitutional system, political forecasting, the legislative process and federal labor law. Mr. Cooper has served in senior capacities in the George W. Bush Administration including stints as chief of staff at the Voice of America and the Dept of Labor’s Employment Standards Administration. Horace Cooper previously served as Counsel to the Honorable Richard K. Armey, (Majority Leader of the United States House of Representatives from 1994 - 2002). Mr. Cooper’s interests include current issues involving law and American society, political forecasting, and the changing makeup of the United States Supreme Court.

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