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Bequest and Tax Planning: Evidence From Estate Tax Returns

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  • Wojciech Kopczuk

Abstract

I study bequest and wealth accumulation behavior of the wealthy (subject to the estate tax) shortly before death. The onset of a terminal illness leads to a very significant reduction in the value of estates reported on tax returns - 15 to 20% with illness lasting "months to years" and about 5 to 10% in case of illness reported as lasting "days to weeks". I provide evidence suggesting that these findings cannot be explained by real shocks to net worth such as due to medical expenses or lost income, but instead reflect "deathbed" estate planning. The results suggest that wealthy individuals actively care about disposition of their estates, but that this preference is dominated by the desire to hold on to their wealth while alive.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12701.

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Date of creation: Nov 2006
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Publication status: Published in Quarterly Journal of Economics, 2007, 122(4), 1801-1854
Handle: RePEc:nbr:nberwo:12701

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  1. Powell, James L, 1986. "Symmetrically Trimmed Least Squares Estimation for Tobit Models," Econometrica, Econometric Society, Econometric Society, vol. 54(6), pages 1435-60, November.
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  5. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 388, The Johns Hopkins University,Department of Economics.
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  7. Kenneth Y. Chay & James L. Powell, 2001. "Semiparametric Censored Regression Models," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 29-42, Fall.
  8. Honore, Bo E. & Kyriazidou, Ekaterini & Udry, Christopher, 1997. "Estimation of Type 3 Tobit models using symmetric trimming and pairwise comparisons," Journal of Econometrics, Elsevier, Elsevier, vol. 76(1-2), pages 107-128.
  9. B. Douglas Bernheim & Robert J. Lemke & John Karl Scholz, 2001. "Do Estate and Gift Taxes Affect the Timing of Private Transfers?," NBER Working Papers 8333, National Bureau of Economic Research, Inc.
  10. Chen, Songnian, 1997. "Semiparametric estimation of the Type-3 Tobit model," Journal of Econometrics, Elsevier, Elsevier, vol. 80(1), pages 1-34, September.
  11. Jonathan Skinner & Stephen P. Zeldes, 2002. "The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 274-278, May.
  12. Wojciech Kopczuk & Joel Slemrod, 2005. "Denial of Death and Economic Behavior," NBER Working Papers 11485, National Bureau of Economic Research, Inc.
  13. Poterba, James, 2001. "Estate and gift taxes and incentives for inter vivos giving in the US," Journal of Public Economics, Elsevier, Elsevier, vol. 79(1), pages 237-264, January.
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