Unfree Wills: Inheritance Rules, Bequest Motives, and Wealth Diffusion

We examine how liberalizing inheritance law can affect the diffusion of wealth beyond family dynasties. Exploiting a reform that reduced mandatory estate shares for children and surviving parents, we analyze testator responses in a unique dataset of 16,887 anonymous online wills. We find that greater testamentary freedom led testators to increase transfers primarily to spouses and life partners, but also to nonrelatives and charitable organizations. Our estimated ’marginal diffusion propensity’ reveals that, for each additional percentage point of freely disposable wealth, approximately one third was reallocated towards recipients outside the core family. Extrapolating this effect suggests that liberalization could result in additional annual extra-dynastic bequests of up to 0.8% of national income in countries with restrictive inheritance rules.