The cost of equality : unequal bequests and tax avoidance *

For altruistic parents desiring to bequeath their wealth to their children, estate taxes can be costly in utility terms. The most straightforward way to reduce the tax burden is through inter vivos transfers. Taking full advantage of potential tax-free giving often requires that parents differentiate between children in the amounts transferred. This unequal giving contrasts sharply with the presumed desire to make equal bequests. This paper examines the extent to which wealthy parents take advantage of tax-free giving, and whether the desire to spend-down an estate is sufficient to induce unequal giving. I find that while wealthy parents do appear to make ‘‘early bequests,’’ they rarely do so to the extent permitted by law, and thus forego a substantial amount of tax savings.  2001 Elsevier Science B.V. All rights reserved.