Hey everyone,

Curious about something regarding the relative value formula. Particularly the numerator, where we asses A-T value of the gift.

Why is the gift tax applied AFTER the A-T growth of the gift while it is held by the recipient? When i calculate which method should be preferred using pure intuition, as opposed to that formula, i think i will almost always reach the same conclusion, but i grow the gift at whatever that after-tax rate of growth for the recipient is AFTER reducing the amount of the gift by the gift tax: GIFT AMOUNT x (1 - Tax Rate on Gifts) x (1+(pre-tax return earned by recipient x (1 - recipient tax))^n. Why is this not the case in the relative value formula, as my thought is that the gift should be taxed upon receipt?

Using my formula above, i get to a very similar conclusion, which i think will work in most cases, unless the ending amount is VERY close between the two.

Thanks for the clarification!

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Thanks for all the insights guys, it has been such a help.

If you’re going to pay a defined % tax, pay it after your money has compounded.  Don’t pay it up front.