TITLE

Optimal Give-Versus-Bequeath Tax Strategies Under the Tax Relief Act of 2001

AUTHOR(S)
Cunningham, Donald F.; Erickson, Paul
PUB. DATE
August 2002
SOURCE
Journal of Financial Planning;Aug2002, Vol. 15 Issue 8, p84
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article identifies circumstances in which the conventional advice in estate planning is not always the best strategy through a capital budgeting approach. When individuals think of estate planning, most consider the process an exercise in transfer tax minimization. In an effort to reconcile tax issues with non-tax issues, most planners probably would agree that the first step to determining client preferences for disposition of property absent any tax considerations. Although non-tax issues are difficult to quantify, the wealth effects from tax considerations are readily quantifiable. The complete set of present values for all or give bequeath scenarios is essentially a cost schedule. Regardless of their non-tax issues, donors can use such a schedule to price their comfort level for giving or bequeathing assets. Three assumptions are critical to the following give-or-bequeath analysis. To initiate the analysis, planners should consider a case which the time value of money is zero. As a result, future values and present values are identical. On the other hand, income producing assets generate income taxes, but appreciating assets do not generate capital gain taxes if, as discussed in the assumption section, donors and beneficiaries do not sell transferred property to third parties. This paper demonstrate that giving is better than bequeathing for donors with life expectancies of less than ten years. Determining the best assets to give defends solely on the differential between income tax brackets of donors and beneficiaries.
ACCESSION #
7180517

 

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