Average tax rate on income from work and savings: 15.8% Average tax rate on inheritances: 2.1% That should change, according to this NYU law professor.
Americans are expected to inherit about $764 billion in 2020, and some will pay little to no tax — some critics say that should change.
“In a fairer system, income from large inheritances would actually be taxed at a higher rate than income from work,” Batchelder wrote. “Recipients of large inheritances are better off than people who earn the same amount of money by working because heirs incur no opportunity cost: They have not had to give up any leisure or earning opportunities in order to receive their inheritance.”As part of her report, Batchelder proposes changing the taxation system for inheritances.
Currently, the estate tax rate is 40% for the sum of lifetime gifts over $11.58 million for single individual or $23.16 million for a married couple, which means anything less than these caps are given tax-free. The exemptions and rates for gift tax and generation-skipping transfer tax, which is for inheritors two or more generations younger than the donor, follow the same rules as the estate tax.
The U.S. is in the midst of a massive intergenerational wealth transfer. The wealthiest individuals in the world are expected to transfer $15.4 trillion by 2030, and the transition of more than half of those assets will happen in North America, according to a 2019 report from Wealth-X, a data analytics firm.That wealth transfer will likely benefit millennials most, who have nowhere near as much of the wealth as their grandparents when they were the same age.
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