Wealth, gifts, and estate planning at the end of life

We show that gifts made to heirs before death are substantial and highly responsive to taxation. Using intergenerationally-linked administrative data from the Netherlands and exploiting variation in the timing of death, we find that single people (including widows) with children transfer around 10 % of their wealth to their children in anticipation of death. This is almost entirely in the form of tax-exempt gifts. Exploiting bunching at kink points in the gift tax schedule and a reform to inheritance taxation, we estimate elasticities of gifts and wealth to taxation and find that tax-avoidance accounts for at least a significant minority of this deathbed giving. The ability to make tax-favoured gifts means that the revenue-maximising flat inheritance tax rate is at most 37 %. Equalising the tax rate on deathbed gifts and inheritances at death would increase revenues raised from singles by 10 %. • In the Netherlands, single people with children transfer around a tenth of their wealth to their children in anticipation of death. • Those with larger amounts of wealth and who suffer a health shock further in advance of death make larger deathbed transfers. • These transfers are responsive to tax incentives to transfers wealth as gifts while alive rather than after death. • The ability to make tax-free gifts limits the revenue-maximizing flat rate of inheritance tax to 37 %. • A reform that taxed deathbed gifts at the same rate as inheritances would increase inheritance and gifts tax revenues from singles by 10 %.