Just good to know? Or must know?
You mean the RV for estates and gifts?
Must know.
Definitely must know. No need to learn by heart though, if you understand the formulas you will know them.
What are the gift formulas? Please post, thanks in advance.
The relative after-tax value of lifetime gifts and testamentary bequests. TAX FREE GIFTS
The relative after-tax value of a tax-free gift made during one’s lifetime compared to a bequest that is transferred as part of one’s estate is: RV = (FVgift / FVbequest) = [1 + rg(1 - tig)]ⁿ / [1 + re(1 - tie)]ⁿ(1 - Te) Te = estate tax (bequest), rg and re are pretax returns to the gift recipient and estate. tig and tie are the effective tax rate on investment returns on both the gift recipient and the estate making the gift. If pretax returns and effective taxes are equal for recipient and donor, this equation becomes 1/(1-Te)
The relative after-tax value of lifetime gifts and testamentary bequests. TAXABLE GIFTS
RV = (FVgift / FVbequest)
= [1 + rg(1 - tig)]ⁿ(1 - Tg) / [1 + re(1 - tie)]ⁿ(1 - Te) (only difference is Tg term in numerator) Tg = tax applicable to gifts, Te = estate tax (bequest), rg and re are pretax returns to the gift recipient and estate. tig and tie are the effective tax rate on investment returns on both the gift recipient and the estate making the gift.
The estate planning benefit of making lifetime gifts when gift taxes are paid by the donor rather than the recipient.
When tax liability is imposed on donors estate, the tax benefit of the lifetime gift vs bequest increases. Paying the liability from the donors estate decreases the size of the taxable estate and hence ultimate estate tax (assuming recip will not be taxed or is taxed lower). Gifting becomes more attractive from a tax perspective.
RV = [FV Gift / FV Bequest] = [1 + rg(1 - tig)]ⁿ(1 - Tg + TgTe) / [1 + re(1 - tie)]ⁿ(1 - Te) (difference is TgTe term which represents the tax benefit from reducing the value of the taxable estate by the amount of the gift tax)
Relative after-tax value of lifetime gifts and testamentary bequests for CHARITABLE GIFTS
RV = [FV Charitable Gift / FV Bequest] = (1 + rg)ⁿ + Toi[1 + re(1 - tie)]ⁿ(1 - Te) / [1 + re(1 - tie)]ⁿ(1 - Te) Toi = tax on ordinary income the numerator has no deductions for either gift taxes or taxes on investment returns.
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Are you saying that RV gifts/bequests will not be tested quantitatively?
i am currently reading reading 30. what does RV stand for
Relative Value: the value of this divided by the value of that.