Who will inherit your property?

The thorny subject of wills and inheritance laws has been raised in this newspaper. This being a classic case of where economic efficiency and our general sense of equity — or fairness — conflict.

We’ve also seen the two points being chewed over in Europe as historically, and even today, there’s been a split in how such matters are handled.

Leave aside, for a moment, that religions have ideas about how property should be divided. Different ideas, of course. Start with a very basic thought: Should there be some set of rules about how an estate should be passed on? Can we find some equitable balance which would be “fair”?

If we do, what effect does that have on the other thing we’re concerned about at the whole economy level, how well that whole thing function? The thing the Europeans’ experience tells us is that the search for fairness impacts upon that efficiency. Possibly too much.

Currently in Southern Europe — in general, that is — all children are entitled, by law, to a share of the real property (land and buildings) of the deceased. This right descends through the generations to children and grandchildren, meaning that given the age of likely death, these days, there might be three generations all expecting their share of a house or farm.

This obviously means that any economic asset gets split as it passes through those generations. Something that might have supported a family at one time becomes some mosaic of tiny interests within 50 or 100 years. This was used as a matter of economic power, in fact. One of the worst things the English did to the Irish was insisting that Catholics must divide their land equally among children, while Protestants could pass it all along to the oldest son.

Within that century the land-owning power of Catholics had been destroyed, most were trying to live on some corner of a field. All the large land-owners remaining — which is where political as well as economic power lay — were Protestant.

Napoleon also codified this into his revision of the law for France and subsequently several other Latin countries. It also led to the break up not just of the large aristocratic estates, the political purpose, but of farms of an efficient size which became smallholdings of inefficient.

This is going to be true of any system which insists that each child should gain some “fair share.” Whatever that share is —  whether we think of following the varied Hindu or Muslim rules, or the more nakedly political ones of Napoleon. Insisting that estates to be divided will lead to fragmented ownership of economic assets. To large numbers of people having sub-viable holdings. This is not, in the long run, good for the economy.

It is fair though, in the sense that no one child is benefited more than any other. It just doesn’t work out that well in the long run. In contrast to this, the “Anglo Saxon” system has long been that the disposition of an estate is entirely up to the person doing the dying. After all, in life that property does belong to them.  The definition of belonging that we use is that they can dispose of it as they wish. If they can’t then it’s not really theirs, is it?

So, following along that path, a will can allocate any part of an estate to anyone the person writing the will desires. This is how the local cats’ home gets funded much to the surprise and displeasure of children.

No, there is no attempt to say that funding stray felines is economically efficient. But that ability to allocate as wished means that economic assets can be passed on whole. That is, ownership can remain at an efficient size. This is obviously unfair on those children that don’t get their share of the family assets.

Which is where that difficulty comes in.

What are we to be fair to? Children or the efficiency of the economy? Or even, why should we be fair to children and unfair to the people who currently own the assets and might not want to leave them to those children?

The horrible thing here is that there isn’t actually an answer — not one, at least, that we can derive from the basic philosophic study. We have no manner of proving that the one consideration outweighs the other for they are considerations operating along different axes.

Maintaining fairness to the current generation of children and the health of the overall economy? It’s like trying to compare musical scales and colours, just not commensurable.

All I can offer is my own measure of values here. Which is that those families which desire to be fair to their children should do so, those who wish to pick and choose should also be able to.

Thus, there should be no rules about what is a fair share of an estate, only whatever the person doing the dying has decided they’d like to do. But then, given that I come from the Anglo-Saxon system I would say that, wouldn’t I?

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London