People who expect to die in the near future transfer an average of 8-12% of their financial wealth to their loved ones. What’s more, such transfers take place not only among the richest households in society, but also in middle-class families. These are the central findings of a new study of estate planning and inter-vivos transfers in the Netherlands by Eduard Suari-Andreu, Rob Alessie, Viola Angelini and Raun van Ooijen.

The authors show that medical conditions such as cancer and cardiovascular diseases are the most likely to trigger wealth transfers, while individuals experiencing mental illnesses do not appear to engage in them. The decisions are likely to be motivated in part by a desire to avoid taxes, but also by the fact that people enjoy giving to their loved ones while they are still alive.

Given the ageing of the population, the savings and consumption decisions of older individuals have an increasingly relevant influence on the economy. Therefore, it is important to understand the factors and motives that explain these decisions.

Among others, transfers of wealth from parents to children are an important factor to consider in this context. That is because households often save part of the wealth to transfer it to their children or other family members. This factor is especially relevant in the current context of growing wealth differences across generations.

The new study investigates the relevance of these transfers in the last years of life. The authors show that individuals who expect to die in the near future transfer on average between 8% and 12% of their financial wealth.

To come to this result, the authors compare the wealth at the time of death of these individuals who expect to die soon with comparable individuals who die unexpectedly. They do so by employing high quality administrative data for the Netherlands, including all deaths that occurred in the country between the years 2006 and 2013.

The authors show that intergenerational transfers take place not only among the richest households in society, as usually assumed, but also among middle-class households. They also provide evidence that medical conditions such as cancer and cardiovascular diseases are the most likely to trigger these wealth transfers, while individuals experiencing mental illnesses do not appear to engage in such transfers.

This study has important implications for public policy since it shows that, at least during the last years of life, households have a preference to give a relevant share of their wealth to their loved ones.

The Dutch gift and inheritance tax system allows individuals to reduce their tax liability by dividing their estate into smaller parts and gradually transferring them over several years. Therefore, this behaviour is likely to be, at least partially, motivated by a desire to avoid taxes.

But the tax-driven motive can also be combined with the fact that individuals may enjoy giving to their loved ones while they are still alive. Examining the relative importance of these motives should be a key focus of future research in this field.

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Giving With a Warm Hand: Evidence on Estate Planning and Inter-Vivos Transfers

Authors:

Eduard Suari-Andreu (University of Leiden)
Rob Alessie (University of Groningen)
Viola Angelini (University of Groningen)
Raun van Ooijen (University of Groningen)