IDEAS home Printed from https://ideas.repec.org/a/spr/jbecon/v86y2016i9d10.1007_s11573-016-0808-6.html
   My bibliography  Save this article

A little less waiting, a little more action? Inheritance tax planning under lifespan uncertainty

Author

Listed:
  • Markus Diller

    (University of Passau)

  • Maximilian Kittl

    (University of Passau)

Abstract

To reduce the inevitable tax burden resulting from a bequest, taxpayers can make use of preceding inter-vivos transfers. This transfer procedure is naturally characterized by uncertainty concerning the donor’s remaining lifespan. Starting with the well-known ascending allocation structure under certainty, we establish an advanced tax planning approach and analytically analyze the impact of lifespan uncertainty on the pattern of the optimal wealth transfer process. This allows us to identify an additional effect that is relevant in the context of inheritance tax planning, to which we refer to as the progression clause effect. Its basic impact is that a transfer step loses relevance as the risk of not surviving the subsequent transfer step increases. Focusing on a model with three planned transfer steps, we find that this effect potentially leads overall to a significant increase in the relevance of the initial transfer step. As a consequence, replacing the known ascending structure of the transfer amounts by a U-shaped structure could be a reasonable strategy. This is especially true for donors of an advanced age. This finding is essentially also corroborated for strategies involving more than three transfer steps.

Suggested Citation

  • Markus Diller & Maximilian Kittl, 2016. "A little less waiting, a little more action? Inheritance tax planning under lifespan uncertainty," Journal of Business Economics, Springer, vol. 86(9), pages 963-995, December.
  • Handle: RePEc:spr:jbecon:v:86:y:2016:i:9:d:10.1007_s11573-016-0808-6
    DOI: 10.1007/s11573-016-0808-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11573-016-0808-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s11573-016-0808-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Adams, James D., 1978. "Equalization of true gift and estate tax rates," Journal of Public Economics, Elsevier, vol. 9(1), pages 59-71, February.
    2. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-1093, Nov.-Dec..
    3. 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.
    4. Schanz, Sebastian, 2006. "Interpolationsverfahren am Beispiel der Interpolation der deutschen Einkommensteuertariffunktion 2006," arqus Discussion Papers in Quantitative Tax Research 20, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    6. McGarry, Kathleen, 2001. "The cost of equality: unequal bequests and tax avoidance," Journal of Public Economics, Elsevier, vol. 79(1), pages 179-204, January.
    7. Joulfaian, David, 2005. "Choosing between gifts and bequests: How taxes affect the timing of wealth transfers," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2069-2091, December.
    8. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    9. Page, Benjamin R., 2003. "Bequest taxes, inter vivos gifts, and the bequest motive," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1219-1229, May.
    10. McGarry, Kathleen, 2000. "Behavioral Responses to the Estate Tax: Inter Vivos Giving," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 913-932, December.
    11. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 151-182, July.
    12. Kuehlwein, Michael, 1994. "The non-equalization of true gift and estate tax rates," Journal of Public Economics, Elsevier, vol. 53(2), pages 319-323, February.
    13. McGarry, Kathleen, 2000. "Behavioral Responses to the Estate Tax: Inter vivos Giving," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 913-32, December.
    14. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-546, June.
    15. Wojciech Kopczuk & Joel Slemrod, 2003. "Dying to Save Taxes: Evidence from Estate-Tax Returns on the Death Elasticity," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 256-265, May.
    16. Joel Slemrod & Wojciech Kopczuk, 2000. "The Impact of the Estate Tax on the Wealth Accumulation and Avoidance Behavior of Donors," NBER Working Papers 7960, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marta Melguizo Garde, 2007. "La motivación de las transmisiones lucrativas entre generaciones de una familia: modelos teóricos y evidencia empírica," Hacienda Pública Española / Review of Public Economics, IEF, vol. 181(2), pages 81-118, June.
    2. Niimi, Yoko, 2016. "To Avoid or Not to Avoid Inheritance Taxes? That Is the Question for Parents: Empirical Evidence from Japan," MPRA Paper 71693, University Library of Munich, Germany.
    3. Junya Hamaaki & Masahiro Hori & Keiko Murata, 2019. "The intra-family division of bequests and bequest motives: empirical evidence from a survey on Japanese households," Journal of Population Economics, Springer;European Society for Population Economics, vol. 32(1), pages 309-346, January.
    4. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
    5. James R. Hines Jr., 2013. "The Redistributive Potential of Transfer Taxation," Public Finance Review, , vol. 41(6), pages 885-903, November.
    6. Bernheim, B. Douglas & Lemke, Robert J. & Scholz, John Karl, 2004. "Do estate and gift taxes affect the timing of private transfers?," Journal of Public Economics, Elsevier, vol. 88(12), pages 2617-2634, December.
    7. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    8. Dale R. DeBoer & Edward C. Hoang, 2017. "Inheritances and Bequest Planning: Evidence from the Survey of Consumer Finances," Journal of Family and Economic Issues, Springer, vol. 38(1), pages 45-56, March.
    9. Mengyuan Zhou, 2022. "Does the Source of Inheritance Matter in Bequest Attitudes? Evidence from Japan," Journal of Family and Economic Issues, Springer, vol. 43(4), pages 867-887, December.
    10. Mengyuan Zhou, 2019. "The Effect of the Source of Inheritance on Bequest Attitudes: Evidence from Japan," Keio-IES Discussion Paper Series 2019-018, Institute for Economics Studies, Keio University.
    11. Sungmun Choi, 2017. "Does past experience affect future behavior? Evidence from estate tax avoidance behavior," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 416-431, June.
    12. Joulfaian, David, 2014. "To own or not to own your life insurance policy?," Journal of Public Economics, Elsevier, vol. 118(C), pages 120-127.
    13. Julie Zissimopoulos & James P. Smith, 2010. "Unequal Giving Monetary Gifts to Children Across Countries and Over Time," Working Papers WR-723, RAND Corporation.
    14. Leganza, Jonathan M., 2024. "The effect of required minimum distributions on intergenerational transfers," Journal of Public Economics, Elsevier, vol. 232(C).
    15. Margit Schratzenstaller, 2023. "Behavioral Responses to Inheritance Taxation. A Review of the Empirical Literature," WIFO Working Papers 668, WIFO.
    16. Joulfaian, David, 2005. "Choosing between gifts and bequests: How taxes affect the timing of wealth transfers," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2069-2091, December.
    17. Yang-Ming Chang & Zijun Luo, 2015. "Endogenous division rules as a family constitution: strategic altruistic transfers and sibling competition," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(1), pages 173-194, January.
    18. Elinder Mikael & Erixson Oscar & Ohlsson Henry, 2012. "The Impact of Inheritances on Heirs' Labor and Capital Income," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-37, December.
    19. Katarina Nordblom & Henry Ohlsson, 2011. "Bequests, gifts, and education: links between intergenerational transfers," Empirical Economics, Springer, vol. 40(2), pages 343-358, April.
    20. Goupille-Lebret, Jonathan & Infante, Jose, 2018. "Behavioral responses to inheritance tax: Evidence from notches in France," Journal of Public Economics, Elsevier, vol. 168(C), pages 21-34.

    More about this item

    Keywords

    Inheritance tax; Bequests; Inter-vivos transfers; Tax planning; Uncertainty;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jbecon:v:86:y:2016:i:9:d:10.1007_s11573-016-0808-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.