What Is Bequest Motives?
Bequest motives, within the field of behavioral finance, refer to the underlying reasons individuals choose to leave wealth and assets to their heirs or other beneficiaries upon their death. These motivations explain why people engage in wealth transfer rather than consuming all of their resources during their lifetime. Understanding bequest motives is crucial for economists and policymakers, as they significantly influence savings rates and the overall wealth distribution within an economy. The study of bequest motives helps distinguish between various models of intertemporal choice regarding consumption and wealth accumulation15.
History and Origin
The concept of bequest motives has been a central topic in economics, particularly in the study of intergenerational transfers. Early economic models often assumed that individuals would consume all their wealth over their lifetime, aligning with the life cycle hypothesis. However, persistent observations of substantial estates being left led to the development of theories explaining why individuals choose to save beyond their own consumption needs.
One foundational theory, the altruistic bequest motive, suggests that individuals derive satisfaction from the well-being of their heirs, treating their children's utility as an extension of their own. This perspective gained prominence with economists like Robert Barro in the 1970s. Another significant contribution came with the concept of the strategic bequest motive, introduced by B. Douglas Bernheim, Andrei Shleifer, and Lawrence H. Summers in a seminal 1985 paper. This theory posits that bequests can be used as a means for testators to influence the behavior or services provided by their potential beneficiaries during their lifetime14. This includes the idea that beneficiaries might provide care or attention in anticipation of an inheritance13. Research continues to explore the nuances, with some studies finding that the presence and magnitude of bequest motives vary across populations12.
Key Takeaways
- Bequest motives explain why individuals choose to leave assets to others rather than consuming their entire wealth.
- The primary types of bequest motives include altruistic (driven by concern for heirs), strategic (to influence heirs' behavior), and accidental (unintended leftover wealth).
- These motives have significant implications for understanding national savings rates, wealth inequality, and the effectiveness of fiscal policy.
- Understanding bequest motives is essential for effective estate planning and financial planning.
Interpreting the Bequest Motives
Interpreting the presence and strength of bequest motives involves analyzing observed behaviors related to saving, investment, and intergenerational transfers. An individual exhibiting a strong bequest motive might prioritize asset preservation over personal consumption, especially later in life, even when facing uncertainty about their lifespan and potential future expenses, such as long-term care costs11. For instance, a person who chooses not to purchase a full annuity despite longevity risk might be doing so to ensure a larger estate for their heirs, indicating an operative bequest motive.
Academic studies often infer bequest motives by examining how wealth changes across different demographic groups, such as those with or without children, or by observing responses to financial incentives or disincentives for leaving bequests. If households save simply due to precautionary saving against unforeseen expenses and die with residual wealth, that would be considered an accidental bequest.
Hypothetical Example
Consider Maria, a retiree with a substantial investment portfolio. According to a simple life cycle hypothesis where individuals aim to consume all their wealth by the end of their lives, Maria might systematically draw down her portfolio. However, Maria maintains a significant portion of her assets, investing cautiously, even as she approaches advanced age. She frequently discusses her desire to ensure her grandchildren have funds for their education and to leave her family home to her daughter.
Maria's actions illustrate an altruistic bequest motive. Her continued conservative investment strategy and reluctance to deplete her principal suggest that she derives satisfaction from the prospect of financially supporting her descendants beyond her own lifetime, demonstrating a clear intention to make an intergenerational transfers.
Practical Applications
Bequest motives are fundamental to various aspects of economics and public policy. In wealth management, understanding a client's bequest motives helps in tailoring investment strategies, designing estate plans, and advising on philanthropic endeavors. For instance, a strong desire to leave a legacy may lead to recommendations for charitable trusts or donor-advised funds.
From a public policy standpoint, bequest motives influence the impact of taxation on wealth accumulation and transfer. Governments consider these motives when designing estate taxes or inheritance taxes, as well as incentives for philanthropy. Charitable bequests, for example, represent a significant portion of overall giving. In 2024, giving by bequest in the U.S. amounted to $45.84 billion10. The National Philanthropic Trust provides data and insights into how these motivations translate into actual charitable giving, demonstrating the real-world implications of bequest motives9.
Limitations and Criticisms
Despite their importance, the study of bequest motives faces several limitations and criticisms. A primary challenge is empirically distinguishing between intentional bequests, driven by altruistic or strategic motives, and accidental bequests, which may result from unforeseen longevity or medical expenses8. Individuals facing uncertainty about their lifespan or future costs might engage in high precautionary saving, leaving behind residual wealth that was not explicitly intended as a bequest7. This "accidental bequest" can appear similar to an intentional one in aggregate data.
Furthermore, some critics argue that the altruistic model, while intuitive, may not fully explain all aspects of intergenerational transfers. For instance, if altruism were perfect, it might lead to behaviors like income pooling across generations, which are not always observed in reality. The strategic bequest motive, while offering an alternative, can also be difficult to definitively prove, as family interactions are complex6.
Bequest Motives vs. Ricardian Equivalence
Bequest motives refer to the reasons individuals choose to leave wealth to future generations. In contrast, Ricardian equivalence is a macroeconomic theory that suggests how the government finances its spending (through taxes or borrowing) does not affect aggregate demand or total economic activity, provided consumers are rational and forward-looking. The connection between the two lies in the "operative" nature of bequest motives.
For Ricardian equivalence to hold, consumers must effectively internalize the government's budget constraint, meaning they anticipate future tax liabilities associated with government debt. If an altruistic bequest motive is operative—meaning individuals are actively planning to leave bequests and care about their descendants' well-being—they might save more in response to government borrowing, understanding that their heirs will face higher taxes in the future,. H5o4wever, if bequest motives are not operative (e.g., bequests are accidental), or if individuals face liquidity constraints, the Ricardian equivalence proposition may not hold, and government financing decisions can indeed influence economic activity,.
What are the main types of bequest motives?
The main types of bequest motives are altruistic (leaving wealth out of care for heirs), strategic (leaving wealth to influence heirs' behavior), and accidental (leaving unplanned wealth due to uncertainty in lifespan or expenses).
How do bequest motives affect personal finance?
Bequest motives significantly impact personal finance by influencing an individual's saving, investment, and consumption decisions, often leading to greater wealth accumulation than solely for their own lifetime needs.
Can taxes influence bequest motives?
Yes, taxes can influence bequest motives. Estate taxes and inheritance taxes can reduce the net amount passed on, potentially affecting the incentive or ability to leave a bequest, although the precise impact is a subject of ongoing debate in public economics.
Are charitable donations a form of bequest motive?
Yes, charitable donations made through a will are a form of bequest motive, often driven by a desire to leave a legacy and contribute to societal well-being. This is a common aspect of philanthropic planning.
Why is distinguishing between intentional and accidental bequests important?
Distinguishing between intentional and accidental bequests is important because it helps economists understand the true drivers of wealth accumulation and transfer. This distinction has implications for economic models, fiscal policy effectiveness, and the design of social welfare programs.1