Working Paper: NBER ID: w12701
Authors: 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.
Keywords: bequest; wealth accumulation; estate tax; tax planning
JEL Codes: D12; D31; D91; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| length of terminal illness (I12) | estate value (R33) |
| length of terminal illness (I12) | strategic estate planning behavior (D14) |
| age (J14) | estate planning behavior (D14) |
| length of terminal illness (I12) | net worth (G19) |
| procrastination in estate planning (D14) | estate value (R33) |