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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—fifteen to twenty percent with illness lasting "months to years" and about five to ten percent in the 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 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.

Suggested Citation

  • Wojciech Kopczuk, 2007. "Bequest and Tax Planning: Evidence from Estate Tax Returns," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1801-1854.
    • Handle: RePEc:oup:qjecon:v:122:y:2007:i:4:p:1801-1854.
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    File URL: http://hdl.handle.net/10.1162/qjec.2007.122.4.1801
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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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