Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States

James Poterba

No 6842, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper describes the current estate and gift tax rules that apply to intergenerational transfers in the United States. It summarizes the incentives for inter vivos giving as a strategy for reducing estate tax liability. It shows that the current level of intergenerational transfers is much lower than the level that would be implied by simple models of dynastic utility maximization. Moreover, it demonstrates that even among elderly households with net worth in excess of $2.5 million, roughly four times the net worth at which the estate tax takes effect, only about forty-five percent take advantage of the opportunity for tax-free inter vivos giving. Cross-sectional regressions using the 1995 Survey of Consumer Finances suggest that transfers rise with household net worth, possibly reflecting the impact of progressive estate taxes. In addition, households with a preponderance of their net worth in illiquid forms, such as a private business, are less likely to make transfers than their equally wealthy counterparts with more liquid wealth. Households with substantial unrealized capital gains, for whom the benefits of capital asset basis step-up at death are greatest, are less likely to make large inter vivos transfers than similarly wealthy households with higher basis assets. Nevertheless, the aggregate flow of intergenerational transfers is much smaller than the level that would result if all households that were likely to face the estate tax attempted to transfer resources through inter vivos gifts.

JEL-codes: H24 H31 (search for similar items in EconPapers)
Date: 1998-12
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published as Poterba, James. “Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States,” Journal of Public Economics 79 (January 2001), 237-264.

Downloads: (external link)
http://www.nber.org/papers/w6842.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6842

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6842

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().