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Inheritances in continental Europe

Not being up on the finer points of international estate law, I had no idea that inheritances are treated quite differently in continental Europe. The Economist explains:

To understand one of the gulfs separating the Anglo-Saxon world from continental Europe, consider Warren Buffett’s children. Omaha’s sage investor long ago said he would leave most of his fortune to charity, with more modest sums to his offspring. For Mr Buffett, leaving vast wealth to his children would be “anti-social” in a society that “aspires to be a meritocracy.”

In 26 out of 27 European Union countries, Mr Buffett’s plans would not just be shocking, but illegal. The exception is Britain, or rather England and Wales (Scotland has its own, centuries-old legal system, with a strong continental flavour). In continental Europe a big part of an estate (often around half) is reserved for the surviving children of the deceased and must be equally divided between them. This “forced heirship” makes it impossible to disinherit feckless children (though several countries exclude bequests to “unworthy” children, who have for example murdered a parent or two). Such rules also make it hard to reward the deserving by, say, leaving more to a daughter who gave up a career to care for her ailing parents. Finally, “clawback” laws in many countries stop parents from dodging forced heirship by giving assets away while they are still alive. This applies to gifts made in the last years of life (two years in Austria, ten in Germany), or much longer: in some countries, no time limit applies.

From my American, somewhat-capitalist point of view, it strikes me as pretty odd that a government should try to tightly regulate this financial matter between individual family members. I’m down with the idea of the estate tax in general, I guess, but that’s the state defining a relationship between a wealthy individual and society as a whole, with the state as the proxy for that society. But if I’ve got three children, why is it the state’s business to say I have to treat them equally when I die?

The Buffett example is illustrative, I think, and generally why I’m not a fan of laws that are socially normative—whether those norms have to do with how much money you can bequeath your children, or who you can have sex with, or how much money to pay your hedge fund employees. No matter how well-intended those laws, unforeseen exceptions always creep in. Of course, Warren Buffett is not your typical billionaire, but I think it’s unfortunate when laws punish you for being atypical.

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Tagged: economics, law

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