Divisible Estates

 When the news broke that the billionaire founder of Patagonia was transferring the company—and with it a huge portion of his family's personal wealth—into a charitable trust, even a cynic would be hard-pressed to object to his actions. After all, the gift constituted a voluntary renunciation of billions of dollars of private wealth and a commitment to devoting these funds to the worthy public purpose of responding to the global threat of climate change. 

New York Times coverage in the Dealbook newsletter though offered an alternative perspective. Prof. Ray Madoff of Boston College Law School points out that such massive transfers of wealth into charitable trust also enable the family to dodge a billion dollar tax bill: which would have greeted them if they had left the company by will to their heirs. 

I find it hard to see this as the sole motive behind the gift—after all, the transfer one way or the other puts the money out of the family's reach for private use, so how selfish could its motives really be? Still, Madoff's point is that avoiding taxes in this way nonetheless deprives the public of the resources to which they are entitled under the law. As she puts it: "We are letting people opt out of the support of the government that the rest of us have to participate in."

Long-time readers of Six Foot Turkey may recall that I read Prof. Madoff's book back in 2017. I found it to be a convincing polemic against the rise of perpetual trusts and other mechanisms under U.S. law that enable wealthy donors to circumvent their tax obligations. The point of the argument, of course, isn't that charitable giving is bad. But even the best and most public-spirited donation to a trust still takes that money out of the public purse, where it is at least subject to democratic control, and puts it in service exclusively of the ends chosen by wealthy benefactors. 

I agree with Madoff's core contention, and I thought that one of the book's most attractive suggestions for dealing with the problem emerged from Madoff's review of the history of post-revolutionary France. In the wake of France's successive bourgeois revolutions, she recounts, reformist governments sought to break up the power of aristocratic estates through the mechanisms of forced inheritance. Basically, when a wealthy individual died, instead of being able to dispose of their property by will, they would have to leave it in equal shares to their living descendants. 

This solution had to my mind the elegant quality of solving two problems in one. It ensures that large estates and property holdings will be broken up over time, and that wealthy families cannot establish dynasties through piling up undivided wealth across centuries, while also avoiding what many people seem to find most objectionable in the estate tax: namely, the expropriation of familial wealth by the state. The French rule would seem to respect the claims of family and the desire most people feel to pass on resources to their offspring while nonetheless avoiding the curse of a propertied aristocracy. 

Studying the topic of intergenerational wealth transfers in property law class last week, however, we became acquainted with a hidden drawback of this approach. As desirable as it may seem to force the division of aristocratic estates among all heirs, the same rule when applied to the property of already marginalized and disadvantaged people in our society—for whom a plot of land may be the only form of family wealth—can be disastrous. In fact, it has been one of the primary mechanisms of dispossession in U.S. history. 

Both Native Americans and African Americans in particular were deprived of untold sums of wealth through this process of division. When Native Americans were theoretically granted individual allotments of reservation trust land under the 1887 Dawes Act, for instance, (one of the worst in a long history of failed experiments in U.S.-Indian relations), most of these already small plots (located on low-value reservation land) quickly became so fractionalized among each person's heirs as to be practically valueless. 

A similar thing happened with Black farmers, whose land frequently ended up divided into innumerable fractional interests, each held by different heirs, within a few generations of its original title-holder. And while such a condition might make it appear almost impossible to ever sell the property—due to the sheer number of different interest holders—and might thereby keep it in the family's hands, the common law allows for forced partition-by-sale so long as even one interest holder is looking to sell, and partition-in-kind is a practical impossibility. 

And since the property had been so thoroughly subdivided by that point, each particular stake might be worth only a few dollars. And so, people might end up with a check for around $5 for their share of the land, according to our professor—with this amount representing all that was left to them individually of what had once been a valuable piece of family property: namely, a tract of working farmland. 

And so we see how a policy that seemed attractive at first can actually be used to consolidate power in the hands of the wealthy and further dispossess the already impoverished. In short, we seem to see in the division of property policy an illustration of William Godwin's tragic observation in Caleb Williams (discussed more in the previous post): that "Wealth and despotism easily know how to engage those laws, which were perhaps at first intended [witless and miserable precaution!] for the safeguards of the poor, as the coadjutors of their oppression."

Of course—due precisely to the kinds of devices Madoff is complaining about—there are innumerable ways to sidestep this kind of fractionalization of property interest under U.S. law. Forced inheritance to multiple heirs only occurs when a person dies intestate, after all, and a trust or similar legal structure could be used to hold a single property in a family's possession for the benefit of multiple heirs. 

But Godwin again points out the reason why these sorts of solutions under the law—of such great value to the rich—are of so little aid to the poor and downtrodden, even if they theoretically would have recourse to them as well: the lack of access to the lawyers that rich charitable donors and testators are able to employ in such quantities. "Where shall" the poor person, asks Godwin, "find leisure, much less money, to see counsel and officers, and purchase the tedious, dear-bought remedy of the law?"

Perhaps we see in all of this merely another instance of the Saul Alinksy principle: namely, that every solution to a problem of public policy creates a new problem in turn, and thus the work of the reformer and radical is never done, no matter how many eons pass away. Very well, I say, let us shoulder the burden. If both the division of inherited property and its consolidation can be used to dispossess the poor and further empower the rich, then we must figure out how to prevent the injurious applications of both, and enable their positive aspects. 

But Godwin's novel suggests a further possible lesson we could take from all this: namely, that the law is in any case a very flawed instrument for trying to effect moral change. Now, as a philosophical anarchist, Godwin perhaps stretches the point a bit too far. I find it hard to agree with him that there is no role at all for the coercive powers of the state in enforcing justice (certainly my current choice to be a law student would be hard to reconcile with such a belief). 

But Godwin's great contribution regardless was to emphasize the inseparability of violence—and its corrupting potential—from the use of any legal remedy, no matter how well-intentioned. Long before Max Weber was talking about the state as nothing other than "organized violence," the resort to which always and necessarily involves an entanglement with "Satanic" powers, Godwin was already talking about the "gore-dripping robes of authority" that hover over every law court.  

If every law we pass, regardless of underlying intent, can be exploited to the benefit of the rich and powerful, and if every use of a legal remedy, in however just a cause, is simultaneously a resort to the corrupting use of force, it's hard to disagree with Godwin. Yet at the same time, Madoff is certainly correct that the instruments of the law have the advantage over private action in that they are the only kinds of collective endeavors subject to democratic control. 

The answer, it seems to me, might be found in what a friend has acquainted me with as a kind of present-day Confucianism: a distrust of the coercive powers of the state, a preference for familial and private action, but a use of the powers of the state to lay the groundwork for moral action within the family and society.

Like every other set of general principles, their realization in concrete action will come down to the given case. But as guidelines, they seem to offer a preferable third way to the binary conflict between government and the market that seems to plague our current Western political debate. When either of two paths appears inevitably to terminate in danger, it behooves us to at least look about for a third.