Effects of Taxation: Investments by Individuals

By J. Keith Butters; Lynn L. Bollinger | Go to book overview

CHAPTER XV
Gifts and Trusts

TAXES have an important bearing on the distribution of property ownership among different members of the family unit and on the proportion of the family property which is owned outright by private individuals as compared with that which is placed under trustee ownership and management.1 These effects, which react indirectly on the flow of funds from private individuals to business, are discussed in this chapter.


TAX INCENTIVES TO TRANSFER PROPERTY BY GIFT RATHER
THAN AT DEATH AND EXTENT OF GIFTS BY WEALTHY
INDIVIDUALS

The combined estate, gift, and income tax structures create strong incentives for the transfer of property from older to younger generations within a family unit by living (inter vivos) gifts rather than at death. A detailed analysis of these incentives is beyond the scope of our present discussion, which can only touch the high spots of this involved area of tax law, but we shall nevertheless try to indicate their general nature.2 The main tax advantages of transferring property by gift rather than at death arise from the following sources.

1. A donor may give up to $3,000 annually to an unlimited number of donees without reporting these gifts for income tax purposes, and, in addition to these "annual exclusions," the donor

____________________
1
In addition, taxes tend to increase the willingness of wealthy individuals to make gifts and bequests to philanthropic institutions. We shall not, however, undertake a detailed analysis of this point, but merely note it in passing.
2
The level of the income and estate tax rates has been described in Chapter IV, and the general structure of the estate and gift taxes has been discussed in considerable detail in an earlier volume in this series ( Butters, Lintner, and Cary, op. cit., especially Chapters II, III, and V). We shall not attempt to duplicate this material in this chapter. It should also be noted that much of the following discussion is summarized from Chapter V of the above volume, to which the reader interested in more detail and background is referred.

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