The estate tax, more commonly known as the “death tax,” is one of the most hated taxes in the United States. Long considered to be a contentious issue in the tax policy field, Americans are largely not comfortable with the concept of taxing inheritances. However, estate taxes align perfectly with America’s historical idea of fairness and not encouraging wealth to accumulate long after death. Despite citizens’ contempt for taxes at death, few will ever actually be subject to the estate tax. Read on to learn more about the estate tax, and what happens to our money after we die.

Evolution and History of the Estate Tax

The Internal Revenue Service defines the estate tax as “a tax on your right to transfer property at your death.” Taxation at death can be traced back as far as ancient Egypt, around 700 B.C. In feudal Europe, it was also quite common to impose taxes on the death of a family member, normally amounting to a family’s annual property rent.

Early American government abolished laws that encouraged the accumulation of wealth over many generations. In 1777, Thomas Jefferson cited Adam Smith, a free market capitalist, when stating that “the earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity.” The concept that people should control their estates after death was considered “manifestly absurd” by both Jefferson and Smith.

The modern estate tax evolved through the Stamp Tax of 1797 (taxes levied on required federal stamps on wills, inventories, and letters of administration), the Revenue Act of 1862 (the addition of a legacy or inheritance tax along with the stamp tax on the probate of wills or letters of administration), and the War Revenue Act of 1898 (a federal legacy tax proposed to raise revenue for the Spanish-American War, levied only on personal property).

The Estate Tax 1900 to Present

The Revenue Act of 1916 specifically created a tax on the transfer of wealth to beneficiaries. This levied a tax directly on the estate itself, rather than an inheritance tax. Over the next few decades, laws surrounding the estate and gift tax framework shifted immensely. A gift tax was repealed in 1926, then reintroduced in 1932; tax bases expanded; life insurance rules were modified to exclude insurance the decedent never owned; and marital deductions frequently changed. Significant tax law changes came around with the Tax Reform Act of 1976. This created a unified estate and gift tax framework; prior to this reform, it was far cheaper to give property away during life as gifts, as there was a higher tax rate applied at death. The generation-skipping transfer trust tax was also added to combat creative trust frameworks that paid money out to intervening beneficiaries, avoiding taxes altogether.

The Economic Growth and Tax Relief Reconciliation Act of 2001 allowed for a phasing-out of the estate tax, along with a lowering of annual top-rate estate taxes. It also lowered capital-gains taxes, in addition to lowering income taxes. Much of the resistance to the estate tax has come from powerful public relations campaigns and lobbying efforts. Many wealthy families have lobbied for years around an estate tax repeal and funded actions to make it a reality: including the Mars Chocolate family, the L.L. Bean family, and the Campbell’s Soup family.

The “Death Tax”

While citizens feel very strongly about the “death tax,” it only affects a small percentage of families each year. According to a 2016 Gallup poll, 54 percent of those polled supported a repeal of the estate tax. Under the current law, however, the 40 percent tax rate is applied only to estates worth more than $5.45 million for individuals and more than $10.9 million for married couples. If a decedent has an estate worth less than that, then it is automatically passed on to heirs completely tax-free. Additionally, individuals are able to give away $14,000 a year as a gift to an unlimited amount of people without incurring any tax.

So, an overwhelming majority of families in the U.S. are not subject to the estate tax. For example, in 2015, only 4,918 estates were subject to the tax, yielding $17 billion (less than 1 percent of federal revenue). From that number, 266 estates valued at $50 million or more brought in $7.4 billion in revenue. According to the Center on Budget and Policy Priorities (CBPP), 99.8 percent of estates are exempt from the estate tax. The CBPP also notes that $275 billion will be generated from 2017-2026 under the current estate tax law. While that is still less than 1 percent of federal revenue during that same period, it is more than the government will spend on the Food and Drug Administration, Centers for Disease Control and Prevention, and Environmental Protection Agency combined. Estate taxes clearly remain an integral source of revenue for the federal government.

Moreover, the interesting thing about many estates is that most will not ever actually be taxed. The CBPP estimates that 55 percent of the value of the estates worth more than $100 million are comprised of unrealized capital gains; those gains have not yet been taxed nor will they ever be taxed under current estate tax laws. Capital gains are only taxed when an owner of an asset “realizes” a gain; therefore, if an asset is held by an owner until death, increasing in value over the years, it will never actually be subject to income tax.

Generally, taxable estates pay less than one-sixth of their value in tax–roughly 16.6 percent, far below the top statutory rate. Additionally, the significant number of loopholes and generous deductions enable many estates to avoid taxes altogether. Hence, many families are able to pass on numerous assets to future generations tax-free due to advantageous laws.

Estate Tax Repeal

Republicans have long sought to repeal the death tax, and now thanks to President Trump, that dream may be realized. Abolishing it completely would save millionaires and billionaires in the U.S. roughly $20 billion a year in taxes. An action to repeal the estate tax would be beneficial only for the top 1 percent of families in the country, something that appears to be completely at odds with the working-class voters who helped to elect Trump. Under the current administration, passage of a bill to repeal the estate tax in the Republican-led House is practically certain; as for the Senate, a decade-long repeal is possible under a reconciliation which needs 50 senators. To repeal the estate tax permanently, 60 votes would be needed, which may be more difficult to garner.

“Donald Trump” Courtesy of Gage Skidmore : License: (CC BY-SA 2.0)

Opponents of the estate tax have contended that it hurts family farms and small businesses immensely. In reality, very few small businesses and farms owe any estate tax in a given year. In 2013, only roughly 20 small businesses and small farm estates were subject to the estate tax, and estimates show that those estates only owed about 4.9 percent of their value in taxes.

If repealed, President Trump’s estate alone would save about $564 million, based on his estimated net worth of $3 billion (although he has argued that his net worth is even higher). Trump’s team, which is comprised primarily of extremely wealthy individuals, would also benefit greatly from an estate tax repeal. However, a proposed plan to repeal the estate tax indicates a bit of compromise as well. Instead of capital gains being able to pass to heirs tax-free, those assets would be subject to a capital gains tax at death, with an exemption of the first $10 million in assets for family farms and small business owners. A tax on capital gains would only top out at 20 percent, while the estate tax is at 40 percent. Thus, repealing the estate tax and replacing it with a capital gains tax would be extremely beneficial for wealthy families. 

Conclusion

The estate tax is misunderstood by most Americans; despite all of the negative sentiments surrounding it, only a minuscule number of estates will be affected by it annually. In actuality, a repeal of the estate tax would only benefit a small number of incredibly wealthy families in the U.S., while simultaneously depriving the federal government of billions of dollars of revenue each year. When weighing the merits of the estate tax system, one should consider the benefits of allocating society’s resources and promoting equality over the potential consequences of binding the majority of assets and wealth into a small percentage of the American population.

Nicole Zub

Nicole is a third-year law student at the University of Kentucky College of Law. She graduated in 2011 from Northeastern University with Bachelor’s in Environmental Science. When she isn’t imbibing copious amounts of caffeine, you can find her with her nose in a book or experimenting in the kitchen. Contact Nicole at Staff@LawStreetMedia.com.

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Even in death, details into Prince’s larger-than-life persona have been shrouded in mystery.

Prince, 57, was pronounced dead on April 21 after being found unresponsive at his Minneapolis home. An autopsy was conducted, but the coroner has withheld the results for weeks, allowing speculations to flourish. Information from anonymous sources and rumors have pointed to the flu, painkillers, and even AIDS as all being possible causes for the singer’s death.

But while we continue to wonder what caused the notoriously soft-spoken and private artist to die so suddenly, we can turn our attention to the chaos surrounding his multi-million dollar estate.

On Monday, Tyka Nelson, Prince’s sole full sister, and his half siblings headed to court for a probate hearing to begin the long and inevitably messy process of determining how to divide up his assets.

With no living parents, wife, children, or found will, Prince’s estate is up for grabs. Conflicting media reports have estimated it to be worth anywhere between $100-$500 million, and to include thousands of unreleased songs that are almost impossible to put a price tag on.

Monday’s hearing concluded with Bremer Trust, National Association being appointed the temporary special administrator of the estate. As an administrator, the bank will be tasked with valuing Prince’s image, and his monetary assets (including real estate, bank accounts, music royalties, etc.) It will also handle paying off his remaining debts, and hunting for a possible will, if there is one, as well as any unknown potential heirs.

Sadly, the biggest inheritor of the estate could end up being the government.

According to CNBC, “his estate will owe taxes on whatever the IRS and the administrators agree on as its value, and with a federal estate tax rate of 40 percent and a Minnesota tax rate of 16 percent, roughly half the estate could go to the government.” Unfortunately, with proper financial planning, Prince could have significantly reduced this tax bill.

While no one knows exactly what the outcome will end up being, this is a tragically ironic fate for the artist who was notoriously protective over his intellectual property rights and personal life.

Alexis Evans

Alexis Evans is an Assistant Editor at Law Street and a Buckeye State native. She has a Bachelor’s Degree in Journalism and a minor in Business from Ohio University. Contact Alexis at aevans@LawStreetMedia.com.

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On January 23, 2015, a quiet title suit was filed against the estates and heirs of Jack Kerouac and Neal Cassady over the famous letter that allegedly spawned the creation of Kerouac’s landmark novel, On the Road. On the Road, published in 1957, tells the tale of Sal Paradise, the novel’s narrator, as he crisscrosses the nation on the road in search of “it,” alongside his pal Dean Moriarty.  Sal and Dean are based on Kerouac and Cassady.

The letter, which is written from Cassady to Kerouac, holds a high place among Beat Generation lore. The letter is known among Kerouac fans as the Joan Anderson letter, which is an 18-page, 16,000-word, drug-fueled, stream-of-consciousness letter that made Kerouac discard a draft of On the Road for Cassady’s writing style. Kerouac called the letter the “greatest piece of writing I ever saw,” according to Time. The letter also contained a nineteenth page that featured stories of Cassady’s various sexual conquests. The letter was supposed to be auctioned off last December, but the Cassady and Kerouac estates claimed that Spinosa had no right to do so. The auction was later shelved.

Hence the quiet title lawsuit. Quiet title is a lawsuit that establishes a party’s title to real property or personal property and “quiets” any challenges from anyone else regarding title to a piece of property.

According to Courthouse News Service, Jean Spinosa claims that Kerouac gave the letter to famed poet Allen Ginsberg to shop around to various publishers and effectively act as Cassady’s agent. Ginsberg apparently gave the letter to someone at Ace Books and to Richard Emerson at Golden Goose Press, neither of whom ever read it.

Emerson later closed Golden Goose Press and stored its records in boxes at an address where Spinosa’s father, Jack, ran a record company. Emerson gave the boxes to Spinosa’s father, who took them home to his house in Oakland, California, which is where they stayed until Spinosa’s father died in 2011.

Spinosa says that she found the letter in 2012 when she went through her father’s boxes. Michael McQuate was with Spinosa when she found the letter, and he argues that Spinosa agreed to pay him half the proceeds from selling it. Spinosa, however, denies an oral or written agreement between herself and McQuate and has named him in her suit, as well.

In addition to Kerouac and Cassady’s estates and heirs and McQuate, Spinosa is suing the company Profiles in History because she contracted with it to auction off the letter, but that never happened because of the estates’ protests.

The letter is a monumental artifact for mid-twentieth century American literature, signifying the start of the Beat Generation, which helped create a counterculture in the 1950s, and in turn inspire the 1960s Hippie movement. On the Road continues to resonate with young men and women who wish to take to the open road to find themselves, discover a revelation, or find something to hold onto.

If you wish to see the text of the Joan Anderson letter, click here.

Joseph Perry

Joseph Perry is a graduate of St. John’s University School of Law whose goal is to become a publishing and media law attorney. He has interned at William Morris Endeavor, Rodale, Inc., Columbia University Press, and is currently interning at Hachette Book Group and volunteering at the Media Law Resource Center, which has given him insight into the legal aspects of the publishing and media industries. Contact Joe at staff@LawStreetMedia.com.

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A California federal court dismissed a trademark lawsuit last week that John Wayne Enterprises brought against Duke University. The case was dismissed based on lack of jurisdiction and improper venue.

Actor John Wayne, born Marion Robert Morrison, had several nicknames that contained the word “Duke,” such as Duke Morrison, Duke Wayne, and The Duke. John Wayne Enterprises was created to “preserve and protect the name, image, and likeness of John Wayne by associating the John Wayne brand with quality and timeless products and experiences that embody the spirit of John Wayne and give back to the community.” In July 2013, the organization filed a trademark application with the Patent and Trademark Office to use the trademarks “Duke” and “Duke John Wayne” on all alcoholic beverages except beer. Last July, the organization sued Duke University for infringing its Duke trademark on alcoholic bottles.

John Wayne Enterprises argued that Duke University does not own the word “Duke” for use for all purposes’ however, the university argued that John Wayne Enterprises’ use of “Duke” on alcohol beverages caused consumer confusion, which trademark law is designed to prevent. According to the Los Angeles Times, John Wayne Enterprises’ “Duke” trademark is “a label on a bottle of bourbon stamped with a silhouette of the movie star in a cowboy hat, clutching a gun. The name ‘DUKE’ is stamped over his thighs, and John Wayne’s signature is reproduced near his feet.”  The John Wayne Enterprises logo can be seen here.

John Wayne Enterprises tried to gain personal jurisdiction over Duke University in a California federal court because “the school actively recruits students there, raises money there, maintains alumni associations there and sells university-related products there.” However, U.S. District Judge David Carter dismissed the Wayne estate’s lawsuit for lack of jurisdiction and said the case belonged in front of the Patent and Trademark Office Trademark Appeal Board in Alexandria, Virginia.

The court believed that “Duke was aware of John Wayne Enterprises’s presence in the state, but that there was no showing how Duke [University] purposefully directed its conduct at California by filing an opposition to trademarks in Virginia [the location of the Patent and Trademark Office.]”

John Wayne Enterprises and Duke University have battled over the use of the “Duke” trademark before. A July article in the Hollywood Reporter cites conflicts over using the name “Duke” in restaurant services, gaming machines, and celebrity licensing services. Thus, Judge Carter’s dismissal is likely not the end of this case. John Wayne Enterprises can always bring a suit against Duke University on the East Coast.

It’s rare to see John Wayne on the losing-end of a battle, but I am sure that John Wayne Enterprises is already preparing its next move to prevail in the end.

Joseph Perry

Joseph Perry is a graduate of St. John’s University School of Law whose goal is to become a publishing and media law attorney. He has interned at William Morris Endeavor, Rodale, Inc., Columbia University Press, and is currently interning at Hachette Book Group and volunteering at the Media Law Resource Center, which has given him insight into the legal aspects of the publishing and media industries. Contact Joe at staff@LawStreetMedia.com.

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The fact that James Dean died in 1955 hasn’t prevented his fans from following his active Twitter account. A passionate fan of the actor created the handle @JamesDean and maintains a sustained presence as his Twitter voice. Dean’s estate, however, took issue with this renegade appropriation and has sued Twitter for not shutting down the account, claiming it has to control how James Dean’s name and image are used. They argue that they are the rightful owners to the handle @JamesDean and should control its activity.

Interestingly, the operator of @JamesDean claims that this lawsuit represents an about-face from the estate’s previous policy. On June 16, 2010, @JamesDean sent the following tweet:

Twitter believes that the use of @JamesDean falls within their trademark policy, which permits users to create fan pages of a celebrity as long as the page is not misleading followers into thinking the account represents the official voice of that person. Ultimately, this case features parties with conflicting rights. The Twitter user can argue that he has a freedom of speech right to create a fan account for his or her favorite actor. James Dean’s estate can point to its intellectual property right to control how James Dean’s name is used.

If this case goes well for James Dean’s estate, it could unleash a cascade of litigation against Twitter by celebrities, dead and alive. Additionally, if Twitter caves to the pressure applied by James Dean’s estate and dethrones the user who controls @JamesDean, that could also set a precedent that encourages other celebrity estates to sue the company. Twitter will have a lot to lose if they unsuccessfully handle this lawsuit.

To its advantage, Twitter can demonstrate that they have policies in place to signal that an account is operated by the real celebrity or his or her estate. For example, Michael Jackson’s Twitter page has a check mark by his name indicating that the account is verified.

Twitter can argue that James Dean’s estate can create their own Twitter account with the verified check mark to proclaim that the account represents the actual voice of James Dean. The estate will appear petulant by maintaining that only the handle @JamesDean will suffice to protect their rights as owners of James Dean’s estate. James and Dean are both popular names – the argument would also mean that the estate can repossess the account of some unfortunate teen who shares the name of the famous star if the teen had @JamesDean as his handle. While it is unlucky that an avid fan created @JamesDean before the estate, their logic appears shaky when they can just create another handle as a verified Twitter account.

There is something unsurprising with James Dean being exiled from his own Twitter handle. It fits his renegade image – but his estate believes only he has the right to determine that.

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Imran Ahmed is a writer living in New York City whose blog explores the legal implications of social media and the internet. Contact him via email here.

Featured imaged courtesy of [Stephanie via Flickr]

Imran Ahmed

Imran Ahmed is a writer living in New York. Contact Imran at staff@LawStreetMedia.com.

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