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Downton Abbey’s Death Duty Explained

Highclere CastleHighclere Castle (Photo credit: Wikipedia)

Spoiler Alert: This blog post contains spoilers if you have not seen the first episode of season four of “Downton Abbey.”

“Downton Abbey,” the British period drama that takes place in the early 1900s, has made death taxes… fun. If you are not familiar with the show, I will set it up for you. The Crawleys are part of the British aristocracy as the Earl and Countess of Grantham. Robert Crawley is the fifth Earl of Grantham and has only one heir, Matthew Crawley. Matthew is Robert’s third cousin, once removed (at this time in history, women still could not inherit property or title). In season three, Matthew marries Mary, Robert’s daughter, to keep the estate, title and money in Robert’s direct line of descent. Almost immediately after the birth of Matthew and Mary’s son, Matthew dies in a car accident.

Now that you are caught up through season three, here is the confusing part that starts season four. A 40% death duty (or estate tax as we would call it) is due on Matthew’s interest in the earldom.

Before he died, Matthew had rescued the earldom from financial ruin by entering into a financial agreement with Robert. Matthew contributed wealth (that he had inherited from the father of his former fiancé) in return for 50% of Robert’s life interest in the earldom. However, upon Matthew’s premature death, the value of Matthew’s interest is subject to a death duty. Since the estate is already challenged financially, the death duty puts a significant burden on the family and threatens the future of the earldom.

You may be thinking that any inheritance would not be subject to a death duty. However, the Finance Act of 1919, which was passed to help pay for the United Kingdom’s debt from World War I, included a death duty with an exemption of merely 100 pounds, and reached its top tax rate of 40% at two million pounds. No exemption was provided for a spouse’s inheritance.  Regardless of whom the estate and title passed to, a death duty of considerable portions would be due.

We will just have to watch the rest of this season to learn how an illiquid, real-property-rich estate will procure cash sufficient to pay the death duty. If this transpired in present day U.S., Matthew would have been able to transfer $5.34 million of his wealth to anyone he wanted, tax free, with an additional unlimited exemption to wealth transferred to his wife Mary. No estate tax would be due because of his death.

Mary Merrell Bailey, Esq., CPA, MBA, MST, MSA, Managing Partner, Your Caring Law Firm. Based in Maitland, Fla., Your Caring Law Firm is a boutique law firm offering probate, wills, trusts, guardianship services, as well as business succession, asset protection and estate planning.

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