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Estate and Gift Tax Incentives and Inter Vivos Giving


David Joulfaian


US Department of the Treasury - Office of Tax Analysis

Kathleen M. McGarry


University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)


National Tax Journal, Vol. 57, No. 2, Part 2, pp. 429-444, June 2004

Abstract:     
The estate tax has received a great deal of attention from policy makers and the public in recent years. Yet we know little about its effect on the transfer of wealth. In this paper we explore the effect of the tax on inter vivos giving. In particular, we look at the degree to which wealthy individuals exploit the potential for tax-free transfers as a means of spending-down their estates, and examine the responsiveness of inter vivos transfers over time to changes in the tax law. To address these questions we employ two data sets, each with important strengths and weaknesses. Using panel data from the Health and Retirement Study (HRS) we find that many of the wealthy fail to take advantage of the gift tax annual exemption to make tax-free transfers in any given year. Even those that do make a transfer in one year, often do not repeat the transfer annually and transfer far less than the tax law would allow. We then use data from linked gift and estate tax returns to examine giving over a much longer period. We find in the aggregate that there are sizable shifts in the timing of giving in response to tax changes, but again, the wealthy appear to transfer very little during their lifetimes. Overall, we conclude that while taxes are an important consideration in transfer behavior of the rich, their behavior is not universally consistent with a tax minimization strategy.

Number of Pages in PDF File: 35

Keywords: Gift tax, estate tax, gifts

JEL Classification: D19, H31

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Date posted: June 1, 2006  

Suggested Citation

Joulfaian, David and McGarry, Kathleen M., Estate and Gift Tax Incentives and Inter Vivos Giving. National Tax Journal, Vol. 57, No. 2, Part 2, pp. 429-444, June 2004. Available at SSRN: http://ssrn.com/abstract=905040

Contact Information

David Joulfaian (Contact Author)
US Department of the Treasury - Office of Tax Analysis ( email )
Kathleen M. McGarry
University of California, Los Angeles (UCLA) - Department of Economics ( email )
Box 951477
405 Hilgard Avenue
Los Angeles, CA 90095-1477
United States
310-206-2833 (Phone)
310-825-9528 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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