Center for Retirement Research

Center for Retirement Research Working Papers

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TITLE:
Bequests, Inheritances and Family Traditions

AUTHOR(S):
Donald Cox, Boston College
Oded Stark, University of Bonn

DOCUMENT TYPE: Article

ABSTRACT:
Do "family traditions" influence bequest behavior? If an individual receives an inheritance from his parents, is he more likely to give a bequest to his children, even after controlling the boost in wealth conferred by the inheritance? Family traditions are pertinent to a host of issues connected with intergenerational transfers: Ricardian equivalence and crowding out, the role of bequests in wealth accumulation, and the responsiveness of bequests to tax changes. Traditions also matter for issues related to behavioral economics, such as mental accounts, social learning and intergenerational transmission of values. Yet because of data limitations few studies to date have analyzed both bequests and inheritances; most focus on one or the other individually. We use the Health and Retirement Survey (HRS), one of the few data sets with comprehensive information on both bequests and inheritances. We find that the receipt of inheritances and intended bequests are positively and significantly related (both in the economic and the statistical sense) even after controlling for a host of other household characteristics, most importantly, household net worth. Discerning the correct label to attach to this partial correlation is a more daunting task. We provide a precise definition of what we mean by a "family tradition" and how it might differ from other channels of influence. Our examination of the nuances of traditions hinges on measuring the flexibility of bequest plans when wealth or other circumstances change. (For instance, will a wealth shortfall have a smaller impact of an inheritor, who may be attempting to carry on a family tradition?) We find some evidence to support the idea that the propensity to bequeath out of wealth differs depending upon whether current wealth is large or small relative to inheritances received. We conclude that economists interested in intergenerational transfers should pay more attention to the possibility of family traditions in bequest behavior.