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The Journal of Wealth Management

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Integration of Income and Estate Tax Planning

Nathan Sosner, Joseph Liberman and Steven Liu
The Journal of Wealth Management Summer 2021, 24 (1) 78-104; DOI: https://doi.org/10.3905/jwm.2021.1.134
Nathan Sosner
is a principal at AQR Capital Management in Greenwich, CT
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Joseph Liberman
is a vice president at AQR Capital Management in Greenwich, CT
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Steven Liu
is an analyst at AQR Capital Management in Greenwich, CT
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Abstract

The preservation and transfer of wealth to future generations are among the central financial goals for most high-net-worth families. Using a stylized theoretical model and Monte Carlo simulations, this article quantifies the benefits of income and estate tax planning for growing wealth over generations. The article shows that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes. More important, the article demonstrates that a significant value accrues from integrating income tax efficiency and estate tax planning: Becoming efficient with respect to one tax should make the family even more eager to become efficient with respect to the other.

TOPICS: Wealth management, simulations, portfolio management/multi-asset allocation, performance measurement

Key Findings

  • ▪ Using a stylized theoretical model and Monte Carlo simulations, this article quantifies the benefits of income and estate tax planning for growing wealth over generations. The article shows that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes.

  • ▪ The article demonstrates that a significant value accrues from integrating income tax efficiency and estate tax planning: Becoming efficient with respect to one tax should make the family even more eager to become efficient with respect to the other.

  • ▪ Our conclusions are robust to moderate declines in pre-tax returns, which might occur in pursuit of tax-efficient investing, and to significant increases in statutory annuity rates involved in estate tax planning techniques.

  • © 2021 Pageant Media Ltd
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The Journal of Wealth Management: 24 (1)
The Journal of Wealth Management
Vol. 24, Issue 1
Summer 2021
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Integration of Income and Estate Tax Planning
Nathan Sosner, Joseph Liberman, Steven Liu
The Journal of Wealth Management Apr 2021, 24 (1) 78-104; DOI: 10.3905/jwm.2021.1.134

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Integration of Income and Estate Tax Planning
Nathan Sosner, Joseph Liberman, Steven Liu
The Journal of Wealth Management Apr 2021, 24 (1) 78-104; DOI: 10.3905/jwm.2021.1.134
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  • Article
    • Abstract
    • THE WEALTH PRESERVATION PROBLEM
    • RELATIONSHIP TO PREVIOUS LITERATURE
    • MODELING THE INTERACTION BETWEEN INCOME AND ESTATE TAX EFFICIENCY
    • MAIN RESULT: STRIKINGLY LARGE BENEFITS OF INTEGRATED TAX PLANNING
    • ROBUSTNESS TESTS
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • APPENDIX D
    • ENDNOTES
    • REFERENCES
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