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Running Some Numbers on the Expiring Gift Tax | Taxation Brief

Running Some Numbers on the Expiring Gift Tax

New York Times:

For the truly wealthy, the tax benefits can be considerable. Consider what Ms. Kroch calculated for someone with $15 million. She assumed that the person gave $5 million to a dynasty trust — meaning a trust that lasts for at least 100 years — and kept the other $10 million in his own name. Ms. Kroch then assumed a 6 percent rate of return over 25 years and an estate tax of 55 percent with a $1 million exemption — what it will be next year unless Congress acts.

The $5 million in the trust would grow to $21.45 million, while the $10 million would become $42.9 million — $26 million of which would go to estate taxes. If the person kept the entire $15 million, it would grow to $64.37 million over the same period, but the estate tax would be $35 million. Put simply, using the gift tax exemption this year would save that person’s estate $9 million in taxes.

For the risk-averse wealthy, the numbers are fairly convincing.