Formula for gift tax when estate pays gift tax from estate

How does this formula for taxable gifts work?

This is when the estate pays the gift transfer tax

RVTaxableGift = FVGift / FVBequest = [1 + rg (1 − tig)]n * [1 − Tg + (Tg*Te * g/e)] / [1+re(1−tie)]n (1−Te)

For simplicity, let’s assume investment return tax for estate and receiver are equal, then the equation simplifies to:

[1 − Tg + (Tg * Te * g/e)] / (1−Te)

Let’s say gift is $100 million, and Tg and Te are both 45%. so this becomes:

[1 - 0.45 + (0.45 * 0.45 * 100)] / (1 - 0.45) = 37.8

The ratio is 37.8. Is this right? The value of the gift is 37.8 times higher if the estate pays the gift tax vs a bequest? This does not feel right.

I dont use the formulas… Just use rational math… take the rate of return and multiple it by taxes, and depends on if its compounded return or annually taxed.

and 37.8X is not a rational/logical result. If that were rational, estate attorneys would be making a lot more money LOL

Where did you get 100 in the final calculation?

100 is just an assumption that I made for the size of the gift. In fact, it should be 100/500 if we assume 500 is the size of the estate.


I figured it out. The value should be gift/estate value, so instead of 100, it should be 100/500.

So the answer to my original question is

[1 - 0.45 + (0.45 * 0.45 * (100/500))] / (1 - 0.45) = 1.0736