According to this website, you need to have over 10 million dollars for your family to be in the top 1 percent by net worth.

However, only about .2 % of estates pay estate tax. The cut off for the estate tax is about 11 million for a married couple. Here is a link about who pays estate tax:

These facts do not seem consistent to me. What am I missing?

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    This might be more of a question for skeptics.stackexchange.com
    – Philipp
    Commented Oct 18, 2017 at 20:53
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    They could be consistent if 80% of the top 1 percent spend enough of their fortunes such that they have less than $11M left by the time they die. ;)
    – TTT
    Commented Oct 18, 2017 at 21:25

4 Answers 4


Of course, you've already realized that some of that is that smaller estates are more common than larger estates. But it seems unlikely that there are four times as many estates between $10 and $11 million as above that range.

People who expect to die with an estate subject to inheritance tax tend to prepare.

I don't know how common it is, but if the surviving member of a couple remarries, then the new spouse gets a separate exemption. And of course spouses inherit from spouses without tax. In theory this could last indefinitely. In practice, it is less likely. But if a married couple has $20 million, the first spouse could leave $15 million to the second and $5 million to other heirs. The second spouse could leave $10 million to a third spouse (after remarrying) and another $5 million to children with the first spouse. All without triggering the estate tax.

People can put some of their estate into a trust. This can allow the heirs to continue to control the money while not paying inheritance tax. Supposedly Ford (of Ford Motor Company) took that route.

Another common strategy is to give the maximum without gift tax each year. That's at least $14k per donor and recipient per year. So a married couple with two kids can transfer $56k per year. Plus $56k for the kids' spouses. And if there are four grandchildren, that's another $112k. Great-grandchildren count too. That's more than a million every five years. So given ten years to prepare, parents can transfer $2 million out of the estate and to the heirs without tax.

Consider the case of two wealthy siblings. They've each maxed out their gifts to their own heirs. So they agree to max out their gifts to their sibling's heirs. This effectively doubles the transfer amount without tax implication.

Also realize that they can pretransfer assets at the current market rate. So if a rich person has an asset that is currently undervalued, it may make sense to transfer it immediately as a gift. This will use up some of the estate exemption. But if you're going to transfer the asset eventually, you might as well do so when the value is optimal for your purpose.

These are just the easy things to do. If someone wants, they can do more complicated things that make it harder for the IRS to track value.

For example, the Bezos family invested in Amazon.com when Jeff Bezos was starting it. As a result, his company could survive capital losses that another company might not. The effect of this was to make him fabulously rich and his parents richer than they were. But he won't pay inheritance tax until his parents actually transfer the estate to him (and I believe they actually put it in a charitable trust). If his company had failed instead, he still would have been supported by the capital provided by his parents while it was open (e.g. his salary). But he wouldn't have paid inheritance tax on it.

There are other examples of the same pattern: Fred Smith of FedEx; Donald Trump; Bill Gates of Microsoft; etc. The prime value of the estate was not in its transfer, but in working together while alive or through a family trust. The child's company became much more valuable as a result of a parent's wealth. And in two of those examples, the child was so successful that the parent became richer as a result. So the parent's estate does count. Meanwhile, another company might fail, leaving the estate below the threshold despite a great deal of parental support.

And those aren't even fiddles. Those children started real companies and offered their parents real investment opportunities. A family that wants to do so can do a lot more with arrangements. Of course, the IRS may be looking for some of them.

The point being that the estate might be more than $11 million earlier, but the parents can find ways to reduce it below the inheritance tax exemption by the time that they die.

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    +1 - I started composing my answer, and only saw yours after a refresh of the page. Pretty comprehensive discussion. Mine adds the whole discount issue on illiquid assets. I've seen a number of articles discussing it, but still wonder how real life examples have played out. Commented Oct 20, 2017 at 13:37

There are two main reasons for the difference between these two numbers:

  1. The estate tax has massive loopholes. Rich people use family business, trusts and unrealized capital gains to reduce the taxable amount of their estate by large percentages. The CBPP link you gave has references at the bottom with details.
  2. People tend to have less money when they die. They make most of their money when they are middle aged and tend to spend down their savings in retirement.

While there are a few people that are wildly wealthy, most of the people with more than 10 million have between 10-50 million dollars. These people shield most of their estate and in the end the tax only effects a small portion of even the wealthy.


There are two key reasons:

Consider a family of four, two kids and two adults, that has a net worth of $20 million. Each of these four people live in a top 1% household. But any of those four people can die, and their estate will not pay any estate tax. Both kids and one spouse can die, and still no estate tax will be paid. Only when the last spouse dies would there be any estate tax.

Also, consider a person who dies but whose assets do not flow into their estate. For example, their assets could be held in an inter-vivos trust. People with higher net worths are much more likely to use trusts to avoid or minimize estate taxes.

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    However, in the normal case, both parents die before the two kids. So you answer makes perfect sense if 0.5% of estates pay estate tax. However, the number is 0.2%.
    – Bob
    Commented Oct 18, 2017 at 22:26
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    That's just the first half of the answer. Commented Oct 18, 2017 at 22:42

Data is a funny thing. There are many different ways of constructing data sets. Keep in mind, the cite you linked is fine, I follow this kind of site when I am data mining. They got their data from the Government, and there's no reason to doubt its validity. Keep in mind, it's a survey. They extrapolate from a survey of a small population -

In the 2016 survey, 6,254 families were interviewed, and in the 2013 survey, 6,026 were interviewed.

1) Let's set that aside, and look at the numbers as if they were gospel. $10.37M net worth to be top 1%. That's people at all different ages, and not the wealth cutoff for those dying, else the estate tax would hit closer to the 1%. Given the limited data set, I'd only hypothesize, if we graphed the age (along the bottom, X axis) vs number of people, the curve would peek in mid to late 60's, as people retire. With 20 years for the couple to spend and gift, it's not tough to imagine that by the time they pass away, the taxable estate $11M couple falls to just .2%.

2) When the estate tax impacted estates over just $600K, and my daughter was born, we set up a trust. Out net worth was barely positive, but insurance alone would have created enough wealth to have our orphaned child be subject to the tax of our estate before she received a dime. We also used the trust to fund her college. As a completed gift, had we made some bad decisions and lost it all, at least that money would be protected. Keep in mind, there are different flavors of trusts, but it's safe to say that in a survey to collect data, the million dollar+ trusts are considered family wealth. Not tough to imagine a good fraction of those families over $10M have a nice chunk already protected this way.

3) Last - For any illiquid assets, there's a discount that gets applied, typically 30%. I own a ranch, and want to start gifting it to the kids, the process involves creating stock, with restrictions, as a way to transfer the fractions required to gift the $14K/yr per person combination. (That is, a couple can gift 14x4 = $56K to a child with a spouse. 4 kids, all married, and the gifting is $224K/yr, $320K at full valuation. Again, these gifts may be to irrevocable trusts, and still thought of as their wealth.

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