Some takeaways from estate tax return data

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
2tall4economy
Posts: 739
Joined: Thu Jan 08, 2015 6:55 am
Location: Global

Some takeaways from estate tax return data

Post by 2tall4economy »

Was playing around on the IRS website looking at various data and saw the net worth data (essentially the aggregate for anyone who filed an estate tax return). For those that already know all about this, then nothing for you here. But it was new to me and I took away a few things.

They do it every 3 years but 2019 isn't published yet (much like a lot of other IRS data hasn't been published for 2020 because reasons?)...

The <$5.5M crowd (estate tax cap at the time) and the $50M+ crowd were significantly different from each other (unsurprisingly), but the $5M to $50M slices were actually quite similar in a lot of ways, so much so that there wasn't much to conclude from that middle ground to differentiate itself from its neighbor.

Debt:
~75% of all people at each wealth level had some amount of debt. Surprised it's so consistent. I would have initially assumed at a certain wealth level you'd wipe away all debt... leverage is a thing though.
Folks with less than $5M maintained ~33% of total asset value as debt.
$5M on up, it was about 6%... I hazard a guess it's their primary residence given their primary residence equity level
Over $50M is still in that 6% range but it shoots way past their primary residence equity. Presumably other debt for their business(es)

Primary residence equity:
<$5M, it's 16%
$5M to 50M it decreases with wealth but stays in high single digits
$50M+ it's only 2%. Makes sense. Houses only get so expensive (most of the time)

For all those who ask this question on the board every few days it seems, it looks like there is a way to triangulate an official answer for you!

Taking a huge leap (because law of averages), the rough average equity of Americans in their primary residences is ~60% (google says, so if you have a different number, feel free to argue, I won't object), that suggests the home value (not equity only) would be:
<$5M - $900k, or ~20% of assets
$5M to $10M - $1M, or ~13% of assets
$10M to $20M - $1.5M, or ~10% of assets
$20M to $50M - $3M, or ~9% of assets
$50M+ - $4.4M, or 3% of assets


Asset allocation:
The <$5M group had the majority of their assets in: 23% real estate (approx. 11% was prim. residence equity), 16% private business assets, 13% retirement accounts, 12% equities, and 40% of other stuff (bonds in total was only 5%)

As you move up the net worth food chain, you see some interesting changes:
<$5M to the $5M to $10M bracket: dial back on private business assets (not PE, not shares, but assets) and get more public equity instead. I expect this is them owning a portion of their personal business which makes their money for them vs investing after they've "made it". Shift out of personal residence and into bonds.
Up to $10M bracket to the up to $20M bracket: almost no change in allocation
Up to $20M bracket to the up to $50M bracket: also small movements. Biggest shift in mix is away from retirement assets (presumably because you can't jam more in) and an offsetting shift to private equity
$20M to $50M+ bracket: huge shift out of real estate and an equally huge shift into private equity/hedge funds. I suppose this is less about a different view on real estate than it is the fact they've got all the utility from real estate possible and are simply allocating it to investments instead

So then, the punchline of what the rich do that the "poor" don't with the money is as follows (comparing the <$5M group to the $50M+ group):

Get rid of debt (24% down to 5%)
Invest in private equity and hedge funds (10% vs 34%)
Add more to their public equity (11% vs 23%)
Have "personal use" and retirement assets wither, relatively, given limitations of utility / caps (42% vs 8%)
You can do anything you want in life. The rub is that there are consequences.
stereotaxis
Posts: 36
Joined: Sun Jan 22, 2017 12:04 pm

Re: Some takeaways from estate tax return data

Post by stereotaxis »

Thanks for your insightful analysis. I have been an admirer of your deep dive posts into financial matters.
Last edited by stereotaxis on Sun Nov 28, 2021 3:02 pm, edited 1 time in total.
sycamore
Posts: 6360
Joined: Tue May 08, 2018 12:06 pm

Re: Some takeaways from estate tax return data

Post by sycamore »

Thanks for posting. Would you mind sharing the URL pointing to the IRS data?
bgf
Posts: 2085
Joined: Fri Nov 10, 2017 8:35 am

Re: Some takeaways from estate tax return data

Post by bgf »

Great post! I wonder how popular PE would be if bond rates were higher. I'd imagine many of these individuals invest in those funds due to lower volatility and more predictable returns than their equity portfolio.

Most people at that level would take a smooth 8% over a rough 12% without thinking twice.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
A2020A
Posts: 3
Joined: Sat Nov 13, 2021 6:04 am

Re: Some takeaways from estate tax return data

Post by A2020A »

Great post, have blog?
yog
Posts: 659
Joined: Wed Jan 15, 2020 11:57 am

Re: Some takeaways from estate tax return data

Post by yog »

sycamore wrote: Sun Nov 28, 2021 6:06 am Thanks for posting. Would you mind sharing the URL pointing to the IRS data?
Here's the main IRS Tax Statistics landing page:
https://www.irs.gov/statistics

Here's the IRS tax statistics page related to Estate, Gift, & Trust Statistics:
https://www.irs.gov/statistics/soi-tax- ... statistics
User avatar
Michael Patrick
Posts: 350
Joined: Wed Dec 19, 2018 9:25 am
Location: Madison, WI

Re: Some takeaways from estate tax return data

Post by Michael Patrick »

2tall4economy wrote: Sat Nov 27, 2021 11:30 pm They do it every 3 years but 2019 isn't published yet (much like a lot of other IRS data hasn't been published for 2020 because reasons?)...
It takes time to produce stats. First off, they have to wait for the returns to be filed. For example, the final extended due date for tax year 2020 was just a little over a month ago.

Then the returns have to be processed which, as we've seen, has been delayed. They will want to wait before they grab the data to allow for interactions with taxpayers (requesting additional information and such) to make sure the data is as final as it can be.

Then they have to build the files they will use to run the statistics and write the programs against the data.

And all of this is somewhat tangential to the mission of the IRS, which is to collect taxes. I don't know how exactly they have allocated resources in the agency, but it would seem that tangential services would be a target for cuts for an agency as starved for resources as the IRS.
Topic Author
2tall4economy
Posts: 739
Joined: Thu Jan 08, 2015 6:55 am
Location: Global

Re: Some takeaways from estate tax return data

Post by 2tall4economy »

sycamore wrote: Sun Nov 28, 2021 6:06 am Thanks for posting. Would you mind sharing the URL pointing to the IRS data?
https://www.irs.gov/statistics/soi-tax- ... -net-worth
You can do anything you want in life. The rub is that there are consequences.
Topic Author
2tall4economy
Posts: 739
Joined: Thu Jan 08, 2015 6:55 am
Location: Global

Re: Some takeaways from estate tax return data

Post by 2tall4economy »

After rebucketing some stuff for easier digestions, I came up with this for anyone interested. The totals won't gel perfectly with the ones above due to choices I made in bucketing (ie including retirement assets in public investments even though IRAs could be use for private investments for example). Apologies for formatting:

<$5.45M <$10M <$20M <$50M >$50M <5M vs >50M
Bonds 8.4% 12.2% 12.2% 11.0% 9.0% 1%
Public Equities 24.2% 33.2% 29.8% 26.7% 24.8% 1%
Other Assets (Cash/Ins/Unspecified) 12.1% 11.3% 12.8% 9.7% 8.8% -3%
PE / Hedge Funds 8.6% 10.2% 10.8% 15.2% 29.2% 21%
Business (Assets/Partns/RE) 35.3% 25.2% 28.0% 30.9% 24.8% -11%
Personal Assets (Prim Res/Art) 11.4% 7.9% 6.4% 6.5% 3.4% -8%
Total Assets 100% 100% 100% 100% 100%
Last edited by 2tall4economy on Sun Nov 28, 2021 9:52 am, edited 2 times in total.
You can do anything you want in life. The rub is that there are consequences.
Topic Author
2tall4economy
Posts: 739
Joined: Thu Jan 08, 2015 6:55 am
Location: Global

Re: Some takeaways from estate tax return data

Post by 2tall4economy »

A2020A wrote: Sun Nov 28, 2021 7:31 am Great post, have blog?
Now there is an idea... I may have a retirement idea forming as a result :)
You can do anything you want in life. The rub is that there are consequences.
Topic Author
2tall4economy
Posts: 739
Joined: Thu Jan 08, 2015 6:55 am
Location: Global

Re: Some takeaways from estate tax return data

Post by 2tall4economy »

stereotaxis wrote: Sun Nov 28, 2021 4:57 am Thanks for your insightful analysis. I have an admirer of your deep dive posts into financial matters.
And you sir are clearly a gentleman and a scholar. And I like the cut of your jib.
You can do anything you want in life. The rub is that there are consequences.
Post Reply