Generation Skipping: Future Value

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kschloss

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Page 298, volume 2: The formula for the future value: 200M * (1.05)^10 (1 - .50) (1.05)^25 (1 - .50)) = 275M does not seem to tax the investment returns (it just has the wealth transfer tax at 50%). Why are the investment returns not taxed here like they are in the other formulas?
 
Ya but the two 50% are for the wealth transfer tax, they are transferring it twice, to two different generations, correct? Why is there no tax on the investment returns - I guess if this were kept in a tax exempt account it could grow like this, but I dont remember the text saying that - what am i mssing here? Thanks for any clarity you can provide cpk
 
The text neither talks about protection in a tax exempt account nor a rate for taxes on income so you can assume whatever you like
:- e.g.
1. yes it is a tax exempt account except for estate taxes
2. the tax rate for income is 0%
3. there is no income generated , only unrealized gains which must be realized at the horizon and must incur estate taxes
It is only a simplified example to illustrate generation skipping advantages
 
for the purpose of illustration - assume that the account is growing 5% after taxes
agree with janakisri above.
 
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