Inter-Asset Differences in Effective Estate Tax Burdens

15 Pages Posted: 17 Feb 2003

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

Abstract

This paper explores the effect of discretion in estate valuation techniques on the effective estate tax burden on different asset classes. For some assets, such as liquid securities, there is relatively little discretion in valuation. For other assets, such as partial interests in closely-held businesses, family limited partnerships, and real assets or collectibles that are traded in thin markets, estate valuations may be more difficult to establish. Estate tax filers may therefore be able to select valuations that reduce the reported value of the estate assets, and therefore the effective estate tax burden. In 1998, estates that invoked the doctrine of "minority discounts" in valuing non-controlling interests in limited partnerships claimed an average discount of 36 percent for these assets, relative to their estimated market value. More than half of all limited partnership assets reported on estate tax returns were valued using this doctrine. This suggests that for a given statutory estate tax rate, the effective estate tax burden may be greater on assets that are easily valued than on difficult-to-value assets. A comparison of the mix of assets reported on estate tax returns, and the mix the estate tax returns would be predicted to hold, given data from the Survey of Consumer Finances, is consistent with lower relative valuations for difficult-to-value assets.

Keywords: Estate Taxation, Bequests, Tax Avoidance

JEL Classification: H21, H24

Suggested Citation

Poterba, James M. and Weisbenner, Scott J., Inter-Asset Differences in Effective Estate Tax Burdens (February 2003). MIT Department of Economics Working Paper No. 03-08. Available at SSRN: https://ssrn.com/abstract=380063 or http://dx.doi.org/10.2139/ssrn.380063

James M. Poterba (Contact Author)

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Scott J. Weisbenner

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