Media Briefings

INHERITANCE PLANS: More than a third of American parents treat their children unequally

  • Published Date: April 2014

American parents are dividing their estates up increasingly unequally between their children – with step-children and children with whom they have irregular contact inheriting the least. These are among the findings of research by Domenico Tabasso, Marco Francesconi and Robert Pollak, presented at the Royal Economic Society’s 2014 annual conference.

Analysing data from the Health and Retirement Study, which covers a sample of more than 26,000 Americans over the age of 50, the researchers find that:

· 35% of American parents aged 50 and above intend to divide their estates unequally among their children – more than twice the number 15 years ago.

· A step-child has a 15% lower probability of being included in the step-parent’s will if the step-parent has genetic children.

· For widowed and divorced parents, the probability of leaving equal bequests drops by 40 to 60 percentage points, depending on the parent’s gender and marital status.

· For parents who have less than one contact per year with at least one of their children, the probability of an equal division of the estate among all children is 28 percentage points lower than for parents who are in regular contact with all of their children.

· The more years the step-child spent living with the step-parent, the higher the likelihood of being included in the will: nine years of step-childhood completely eliminates the step-child penalty.

The authors comment:

‘The stock of wealth that turns over as people die is staggeringly large, with some $41 trillion estimated to pass from the dead to the living in the first half of the 21st century in the United States alone.

‘Taking complex families into account and studying their behaviour is therefore crucial in understanding this intergenerational transmission of wealth.’

More…

In the United States, parents have virtually complete freedom to decide how to divide their estates. This study finds that unequal bequests to children are more common than previously documented. More specifically, they find that 35% of American parents aged 50 and above intend to divide their estates unequally among their children. This is more than twice the proportion of parents who intended unequal bequests 15 years ago.

The research employs data from the Health and Retirement Study (HRS), a household-level survey of a representative sample of more than 26,000 Americans over the age of 50. The survey started in 1992 and the respondents, who are interviewed every two years, answer numerous questions covering a large number of socio-demographic, health and economic dimensions.

The research indicates that in ‘complex families’ – for example, families with step-children or families in which one of the parents has children who live in another household (for example, with an ex-spouse or partner) – intended bequests tend to be highly unequal.

The research reveals that for parents with step-children, the likelihood of including all children in the will is about 30 percentage points lower than for parents without step-children. The negative effect is even stronger for widowed and divorced parents, with a reduction in the probability of leaving equal bequests of 40 to 60 percentage points, depending on the parent’s gender and marital status.

Similar results are found for parents who have limited contact with their children. The data indicate that for parents who have less than one contact per year with at least one of their children, the probability of an equal division of the estate among all children is 28 percentage points lower than for parents who are in regular contact with all of their children.

The more years the step-child spent living with the step-parent, the higher the likelihood of being included in the will: nine years of step-childhood completely eliminates the step-child penalty.

The study also finds that different types of interactions between parent and child are associated with different likelihoods that the child is included in the will. On average, a step-child has a 15% lower probability of being included in the step-parent’s will if the step-parent has genetic children.

This negative relationship is entirely eliminated, however, if the step-child’s predicted income is lower than the genetic child’s, and is more than outweighed if the income difference exceeds 50%. Furthermore, the estimated negative relation is also outweighed if the step-parent regularly looks after the step-child’s children.

The research suggests that the increase in the number of complex families observed in recent years will affect the way assets are transmitted from one generation to the next. The stock of wealth that turns over as people die is staggeringly large, with some $41 trillion estimated to pass from the dead to the living in the first half of the 21st century in the United States alone.

Taking complex families into account and studying their behaviour is therefore crucial in understanding this intergenerational transmission of wealth.

ENDS

Notes for editors:

‘Unequal bequests: are step-children losing out in the distribution of family estates?’ by Marco Francesconi, Robert A. Pollak and Domenico Tabasso

For further information, contact:

Domenico Tabasso, +41 (0)22 3798928, domenico.tabasso@unige.ch

Romesh Vaitilingam: romesh@vaitilingam.com, +44 7768 661095