Document Type
Article
Publication Date
2026
Abstract
The estate tax and the broader wealth-transfer-tax system are even more broken than is commonly understood. Over the past two decades, researchers and policy experts have identified a handful of key tactics that mega-rich families use to pass wealth from generation to generation without paying tax. These tax dodges are notorious enough to be known by their acronyms, such as the IDGT and the GRAT. Scholars and policymakers have proposed reforms to block these tactics, or at least to make them more difficult.
In this Article, we present new analysis, backed by new empirical findings, to show that these proposed reforms would not suffice for restoring wealth-transfer taxes to their original purpose—curbing intergenerational transmission of vast dynastic wealth and power. We argue that this is because an obscure but key anti-abuse tool, the generation-skipping transfer tax (GST), has failed almost completely. Because of the GST’s poor design, and some changes in state law, even if the proposed reforms aimed at IDGT and GRAT techniques were to be enacted, the GST’s failures would continue to undermine the wealth-transfer-tax system.
Consistent with this theory, we present new data showing that wealthy families have successfully stowed staggering sums outside the reach of existing wealth transfer taxes. We estimate that between eighty and ninety percent of the wealth that rich families have set aside for their heirs will likely never be subject to the estate tax. By our most conservative estimate, that represents at least $4.1 trillion, that is owned by trusts that should be taxed but that are now perpetually exempt from transfer taxes—a substantial fraction of the total wealth held by all U.S. families. One-third or more of all the wealth controlled by the top .1% of households may be held in these trusts.
With U.S. inequality high and still rising, these data support an urgent case for reform. We distinguish arguments from commentators who favor subsidizing rather than taxing intergenerational transfers, on the basis that those arguments are only persuasive with respect to families of relatively modest means. For example, Louis Kaplow’s well-known rationale for tax-favoring gifts and bequests breaks down when the gifts comprise vast transfers of dynastic political power and social influence.
Accordingly, we set out some key criteria for transfer-tax reforms to be successful, and we propose a new approach for reform that satisfies those criteria. Historical and economic analysis suggests that transfer taxes fail in part because they trigger large one-time tax bills at death. But spreading payments out over the period after the transfer incentivizes repeal or undermining of the transfer taxes before the revenues even arrive. We thus propose instead an annual withholding tax on trust-held wealth, in effect a down-payment against future transfer-tax liability, and detail several of its key design components. We argue that this structure both complements earlier reform proposals—making the combination of reforms politically feasible and sustainable—and also can by itself successfully address the full alphabet soup of estate-tax dodges, from IDGT to GST.
Recommended Citation
David Gamage et al.,
Taxing Dynasties, 174 University of Pennsylvania Law Review
(2026).
Available at: https://scholarship.law.missouri.edu/facpubs/1348