Which of Your Kids Should Get More?
Class today is about bequests — wealth left over to one’s heirs. There are many interesting economic questions about bequests, including whether they are planned (partly yes, but partly no, because wealth is left over when people die that they had planned to spend in their very old age) and what bequests do to economic inequality (they raise it).
Another question is whether people plan bequests to compensate for their kids’ differential economic successes — give a bigger bequest to the “loser” among one’s kids — presumably to equalize the kids’ marginal utility (if we can make comparisons between kids).
The evidence is clear on this: nearly three-fourths of estates are divided essentially equally among the heirs. The problem is what to do about grandkids, a serious issue if your kids have different numbers of children. Do you divide your estate, or give gifts, per stirpes (equal shares going through each kid) or per capita (equal amounts for each heir)?
This is directly relevant in our gift-giving, since one of our sons has two kids, and the other has four. What to do? We solve the problem each year with equal, large gifts to each son, but with smaller equal gifts to each grandchild. The family of the son with four kids gets more in total, since we feel he needs it more; but the difference isn’t huge — one son’s family gets 45 percent of the total gifts each year, the other 55 percent.
I think this combination of per stirpes and per capita makes sense — it satisfies our preferences, but occasionally I’m bothered by the decision.