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In The Shawshank Redemption, Andy offers to save Hadley some money by setting up a tax-free gift for him:

Andy Dufresne: But you do need someone to set-up the tax-free gift for you. And that'll cost you. A lawyer, for example.

Captain Hadley: A bunch of ball-washing bastards.

Andy Dufresne: I suppose I could set it up for you. That would save you some money. If you get the forms, I'll prepare them for you. Nearly free of charge. I'd only ask three beers apiece for each of my co-workers.

Guard Mert: Co-workers! Get him! That's rich, ain't it?

I'm unable to find the average price of lawyer's consultation, the percentage of tax that Hadley would had to pay, and the price of beer during that time in Maine.

Approximately, how much money might have Andy saved Mr. Hadley?

1 Answer 1

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Andy saved Hadley roughly $24,000 to 25,000 in taxes.

Hadley's relative left him $35,000 from an estate totaling around $1 million. In the 1950s, estates valued $60,000 and under were exempt from estate taxes, so this estate is not exempt and Hadley would have to pay taxes. The federal estate tax rate in the 1950s for all bequests of $10,000 or more was 77%. Therefore, Hadley would have had to have paid $26,950 of his $35,000 bequest to the federal government, leaving him with $8,050. It is possible there would have been additional taxes if Maine (where Hadley lived) or Texas (where the deceased relative lived) had estate taxes at the time. Maine currently does, but I can't find information about Maine in the 1950s.

In this scene, Andy states that the federal government has a gift tax exemption up to $60,000; this is incorrect. In the 1950s, the federal government exempted gifts from taxation only up to $30,000. Therefore, Hadley could gift $30,000 to his wife and the federal government could not touch it. States do not tax gifts.

This leaves Hadley with $5,000 of his $35,000 bequest remaining that he will have to pay a federal (and possibly state) estate tax on. I cannot find tax rates for bequests lower than $10,000, but we can assume it would be something lower than 77%. Depending on the exact rate, it is likely that Hadley would have to pay as much as $2,000-3,000 in estate taxes on the unexempted $5,000. Assuming a $3000 (60% rate) hit on the unexempted portion, Andy saved Hadley $23,950 in taxes alone, possibly more. Hadley would keep probably in excess of $32,000 instead of just $8,050. As a point of reference for what this might mean to Hadley, California prison guards in 1957 made a maximum of $436/month ($5,232/year).

Sources for historical tax rates and exemptions are below.

Tax Foundation source.

IRS source

Lawyer fees would have been minimal compared to the estate tax savings, but Andy has reason to suggest they would be significant

Lawyers charge an hourly rate for filing tax paperwork, and it's likely Hadley would be billed for at least one hour to complete and file this paperwork on his behalf. The lawyer might charge him two or even three hours, but it's hard to imagine they would charge more than that. I cannot find historical rates for Maine lawyers, but in 2022 you can expect to pay between $89 to $326 per hour for a lawyer's time in Maine. So at today's rates, Hadley would at most pay $1,000 in legal fees (probably closer to $300), and that's before you adjust for the fact that the story occurred 70 years ago. Hadley's fees would be far lower, likely less than $50.

However, Andy suggests that the lawyer fees will be expensive: "And that'll cost you." This is part of Andy's ruse. He want's Hadley to think he'd get ripped off by the lawyers so that he'll give Andy and the guys beer for Andy to do the paperwork. That's why he misleads Hadley into thinking a lawyer would be so expensive.

In the grand scheme of things, a few six packs of beer would be nothing

The beer would be a drop in the bucket of course (no pun intended). A 6-pack in the 1950s was less than $2.

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    Depends on the beer? What if they said "I want that beer that was just found in a 11th century monastery"? (Probably not for sale, and probably not any good to drink anymore, but if you wanted to mess with somebody...) And then you could be extra-loose with your definition of "co-workers" and really ramp up that price... (I swear actual lawyers do stuff like this sometimes...) Aug 8 at 19:02
  • For the record, Hadley overestimates the amount tax he'll be paying when he says that he'll only be left with "maybe enough to buy a new car". Median prices for new cars were around $2000 in 1950, well above the $8000 he'd be left with if he paid the estate tax. (Unless Maine's estate tax took another 75% of what was left after the Feds took their share?) Aug 8 at 19:04
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    @Darrel: ""What if they said "I want that beer that was just found in a 11th century monastery"?"" Sounds like a great way to get himself thrown off the roof! @Kryan/Michael: Yeah, one of the points of the scene is that Hadley is griping about his "first world problems" in front of guys serving life in prison. Still, 77% is an absurdly high tax rate. The top bracket income tax in the 1950s was over 90%, so the government definitely took their share back then.
    – ruffdove
    Aug 8 at 20:23
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    In rough 2022 dollars: the estate was $12.3 million, Hadley's bequest was $430 thousand, and Andy saved him $294 thousand. (According to usinflationcalculator.com)
    – Tom
    Aug 11 at 0:03
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    "The federal estate tax rate in the 1950s for all bequests of $10,000 or more was 77%." Was that average, or marginal, tax rate? "That's why he misleads Hadley into thinking a lawyer would be so expensive." Compared to what Andy was charging, it was expensive. Your answer also doesn't address the possibility that Andy overall cost Haley money, given his embezzlement at the end. Aug 12 at 23:30

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