If there’s one thing we’ve learned from the latest season of Downton Abbey, it’s that death taxes (AKA estate taxes) have the power to destroy a family’s estate. Without proper planning, the untimely death of a family’s primary bread winner could leave its surviving members 40% of the breadwinner’s worth in debt. This is why early and well thought out planning is key. While Downton Abbey is just a fictional creation, the woes of death and death taxes are more real than any of us care to admit. In the article below, author Candice Boyer, draws a stark comparison between the fictional arena of Downton Abbey and the unpredictable realities of life, death and death taxes. In the end, Boyer, like most reasonable viewers, saw the lessons to be learned from this season of Downton and advocates for proper estate planning.
6:50 PM 01/14/2014Candice Boyer, Director of Scheduling and Outreach, ATR
Whether or not you were one of the 10.2 million viewers who tuned into the season premiere of Downton Abbey, know that the post-Edwardian period drama shows that sometimes art imitates life. The dulcet-toned and ill-tempered eldest daughter, Lady Mary, has been widowed, losing her husband Matthew Crawley. Fortunately, Lady Mary seems to have bounced back from her extreme state of grief and malaise in just over an hour only to discover she is co-owner of a grand estate that owes inheritance taxes.
The “death duties,” a shockingly blasé term for inheritance taxes, could potentially bankrupt the estate. Should the Crawleys sell land to pay them all at once or find another solution? What will happen when Mary eventually dies and her son becomes the heir? As Crawley patriarch Lord Robert points out, “the estate will now be hit with death duties twice.” The best drama always has a touch of reality so it may come as no surprise to find out that the real-life Downton Abbey has been through this before.
Highclere Castle, nestled in Hampshire, England, is the setting for the “upstairs” portion of Downton Abbey and is regarded as one of England’s finest historic houses. Its beautiful vaulted ceilings and grand rooms have been the seat of the aristocratic Carnarvon family since 1679. In October of 2013, the Daily Telegraph reported that when the Fifth Earl of Carnarvon died in the mid 1920s the estate was taxed at £500,000. That is the equivalent of £30 million today or approximately $51 million U.S. dollars. In 1926, his son, the Sixth Earl and his wife were forced to sell off many valuable family possessions and personal heirlooms to pay off the debt and keep the grand manor house.
To most of us living in 2014 this seems like a fluke of history or the trappings of a bygone age. Knowing that the Carnarvons benefited from a severe and antiquated British class system makes crying about the death tax seem like a pastime for the uber-rich and underworked.
Coincidently, Downton Abbey isn’t the only showbiz death tax twist of late. When the actor James Gandolfini (star of the HBO hit TV series The Sopranos) passed away suddenly in June of 2013 it was discovered that his $70 million fortune was subject to an estimated $30 million in estate taxes.
Certainly some will argue, “He was rich, why shouldn’t the estate be taxed?” But should he be taxed twice? James Gandolfini earned his money from his job and he paid taxes on those wages at the time he earned them. If his estate has to pay inheritance taxes, then the wages he earned will be taxed twice. He was born in 1961, the son of a high school lunch lady and a bricklayer, in Westwood, New Jersey. He was hardly landed gentry and it seems unlikely that the Gandolfinis had a manor house stashed somewhere and simply neglected to inform the IRS.
If you are comfortable with the idea of stealing honestly earned wages that the IRS has already taken a slice of, then it is easy to assume that with the current $5 million-plus exemption the death tax targets only the extremely wealthy. Yet one of the most important and overlooked facts about the inheritance tax is that is slows down the economy for all Americans regardless of income level. Economist Steve Entin, currently with the Tax Foundation, estimated in a 2011 study that full death-tax repeal would increase economic output by nearly $3 trillion over the following decade. In short, small businesses are spending energy and capital to pay for and comply with double taxation rather than create jobs.
In May 2012, small employer Karen Madonia (CFO, Illco, Inc) testified before the Small Business Subcommittee on Economic Growth, Tax and Capital Access that the estate tax was a burden on her family-owned air-conditioning and refrigeration business that employs 90 people and generates $40 million in revenue. She stated, “The reality is that we’re not talking about passing down bank accounts with million dollar balances. These are businesses, where most of the net worth is tied up in inventory, equipment, and real-estate.” She spoke of the time and money her father continually puts into navigating the complexity of the death tax to make sure that if he dies their family business will be able to keep their doors open.
It is doubtful that fictional Lady Mary, swanning around Downton Abbey, has any concern for the expenses of a refrigeration business, but the point is clear. In time, money, or agony, the death tax affects us all.
Candice Boyer is director of outreach for Americans for Tax Reform.