How to Preserve a Fortune: An Experimental Comparison of Foundations and Direct Transfers to the Heir

Werner Güth (), Kurt-Dieter Koschmieder, Maria Vittoria Levati () and Ev Martin ()

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Direct transfers allow heirs to freely use what has been passed on to them. Bequeathers who do not trust their descendants to make proper use of the fortune may prefer investing it in a safe foundation, thereby limiting their descendants' autonomy. In our study we compare experimentally these two institutional arrangements. Although bequeather and descendant have specific personal interests, they agree in their concern for preserving the fortune. Our results show that bequeathers tend to trust their descendant. When transfers to the descendant are less efficient than investments in a foundation, due to, e.g., inheritance taxation, overall bequests decrease significantly.

Keywords: Autonomous foundations; inheritance; efficiency; trust (search for similar items in EconPapers)
JEL-codes: C72 C92 D31 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-knm and nep-pbe
Date: 2005-11
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