Integration of Income and Estate Tax Planning

The Journal of Wealth Management, Summer 2021, 24 (1) 78-104; DOI: https://doi.org/10.3905/jwm.2021.1.134

50 Pages Posted: 2 Oct 2020 Last revised: 26 Jul 2021

See all articles by Nathan Sosner

Nathan Sosner

AQR Capital Management, LLC

Joseph Liberman

AQR Capital Management, LLC

Steven Liu

AQR Capital Management, LLC

Date Written: August 28, 2020

Abstract

Preservation and transfer of wealth to future generations is one of the central financial goals for most high-net-worth families. In this study, using a stylized theoretical model and Monte-Carlo simulations, we quantify the benefits of income and estate tax planning for growing wealth over generations. We show that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes. More importantly, we show that there is a significant value in integrating income tax efficiency and estate tax planning: Becoming efficient with respect to one tax should make the family even more eager to become efficient with respect to the other.

Keywords: Wealth Preservation, Income Tax, Estate Tax, Trusts, GRATs

JEL Classification: G11, G51, H24

Suggested Citation

Sosner, Nathan and Liberman, Joseph and Liu, Steven, Integration of Income and Estate Tax Planning (August 28, 2020). The Journal of Wealth Management, Summer 2021, 24 (1) 78-104; DOI: https://doi.org/10.3905/jwm.2021.1.134, Available at SSRN: https://ssrn.com/abstract=3684883 or http://dx.doi.org/10.2139/ssrn.3684883

Nathan Sosner (Contact Author)

AQR Capital Management, LLC ( email )

One Greenwich Plaza
Greenwich, CT 06830
United States

Joseph Liberman

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Steven Liu

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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