Mental accounting: Estate tax edition

The NYT reports on how wealthy families are navigating the new estate tax laws.

Samuel V. Petrucci, director at Credit Suisse Private Bank, said he was working with an investment banker worth $75 million who was hesitant to put securities or cash into a trust for his children. Instead, he and his wife have decided to put a vacation home worth about $9 million into a trust that allows them to use the home until it passes on to their children.

“This client 100 percent understands why they should give $10 million,” Mr. Petrucci said. “To go from $75 million to $65 million doesn’t work for him. But in his mind, he is willing to part with the vacation home that he wants to keep in the family for a very long time.”

It is true that this wealthy banker will be able to enjoy the house he’s gifted while a similar size trust of cash and stocks would yield him no interim material comfort. Still, the lesson here is that just like spending, giving also comes with its own unique psychological features.

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