The Role of Financial Professionals and Charitable Donations on Inter Vivos Gifting

Abstract

Inter vivos gifts result in lower net-of-tax transfer taxes than transfers at death. However, few individuals make taxable gifts, even if they are very likely to have a taxable estate. Using the 2007 administration of the Survey of Consumer Finances (SCF), we explore the role that financial professionals (e.g. lawyers, accountants, and financial planners) and charitable donations have on probability of inter vivos gifting. We find that having a financial planner is positively associated with the probability of inter vivos gifting, suggesting that financial planners play a role in helping households minimize transfer taxes. Charitable donations are also correlated with inter vivos gifting, suggesting that altruistic households derive utility from the consumption of family and friends as well as charitable beneficiaries. Among high net worth households, having a lawyer decreases the probability of making an inter vivos gift. Because concern about the cost of transferring wealth may not be as great for high net worth households, lawyers may instead help households who are more concerned about control over their assets.

Keywords: inter vivos gifts, charitable giving, financial professionals, tax planning