The Economics of Prepaying Wealth Transfer Tax
Trusts & Estates, Vol. 136, pp. 49-60, 1997
27 Pages Posted: 21 Mar 2012 Last revised: 22 Jun 2012
Date Written: November 14, 2011
Abstract
A prevalent misconception is that deferral of tax is beneficial because the taxpayer may invest and reinvest the dollars that ultimately will pass to the government and make more money on those dollars than if payment was not deferred. This series of articles reveals that this “time-value-of-money” notion may be correct for income tax purposes but that it is exactly backward for all three of the Federal wealth transfer taxes (estate, gift, and generation-skipping). The truth is that (economically) the sooner a taxpayer pays each of these taxes, the better.
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