Paul L. Caron

Monday, February 4, 2019

Kades: Of Piketty And Perpetuities — Dynastic Wealth In The 21st Century

Eric Kades (William & Mary), Of Piketty and Perpetuities: Dynastic Wealth in the Twenty-First Century (and Beyond), 60 BC L. Rev. 145 (2019):

For the first time since independence, in a nation founded in large part on the rejection of a fixed nobility determined by birth and perpetuated by inheritance, America is paving the way for the creation of dynastic family wealth. Abolition of the Rule Against Perpetuities in over half the states along with sharp reductions in, and likely elimination of, the federal estate tax mean that there soon will be no obstacles to creating large pools of dynastic wealth insuring lavish incomes to heirs for generations without end. The timing of these legal changes could hardly be worse. Marshaling innovative economic data extending back centuries, Thomas Piketty has shown that the relatively egalitarian incomes enjoyed in developed economies from the end of World War II until around 1980 were an aberration and that we are in the process of returning to the historical norm of much greater income and wealth inequality. This Article shows, unhappily, that this revival of unending inherited wealth is of even greater concern than previously thought.

Kades 1

In doing so, this Article makes three significant contributions to the growing literature on income inequality and its devastating effects. First, this Article reveals the importance of Piketty’s work to the law of inheritance, and in particular, it extends his “macro” economic insights to the “micro” level of families and the potential role for newly-legitimated perpetual trusts to instantiate a nobility consisting of a relatively small group of families forever privileged by ever-expanding inherited wealth. Second, this Article identifies three devastating consequences of perpetuities, consequences that more than justify rules restricting perpetuities. Finally, this Article reconceptualizes the harms resulting from perpetuities and proposes innovative normative solutions carefully calibrated to ameliorate those harms.

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One of the many flaws in Piketty's work as it relates to dynastic wealth is that access to wealth creation in previous centuries was predicated in large part on ownership of real estate and, later, industrial capacity (capital equipment). Some of these barriers were intensified by race, gender, and/or class distinctions.

In an increasingly information and knowledge-based economy with reduced race, class, and gender disqualifications from full economic participation, the barriers to entry for wealth formation are greatly reduced.

Further, the assumption that dynastic wealth will persist in a dynasty is belied by both human nature and the actions of many wealthy individuals. "Shirtsleeves to shirtsleeves in three generations" is a saying for a reason, and many wealthy people are limiting their heirs' inheritances to avoid dynasties; e.g., Bill and Melinda Gates, who have limited their children's inheritances to $20 million, a pittance (< 1%) compared to the parents' estimated net worth. Paul Schervish's work on the inter-generational transfer of wealth is worth consulting on these issues.

Posted by: Michael L. Wyland | Feb 5, 2019 8:41:52 AM