We have had a lot of discussion here and with clients about the future of the federal estate tax. We have not talked as much about the generation-skipping tax (GST) which was also repealed for 2010. This presents an opportunity for grandparents and great grandparents to pass wealth to future generations that was not previously available.
Generally, the GST is intended to prohibit people from transferring property to generations beyond the next in line without paying significant tax. The IRS does not want someone to be able to give all of their wealth to grandchildren or great grandchildren because they want to be able to tax as many generations as possible.
If transfers are made to grandchildren this year, there is no GST. However, a gift tax of 35% would still apply for transfers in excess of $1 million. If the law as presently written goes into effect, the gift tax will rise to 55% in 2011. The person making the gift to grandchildren or other skip recipient will not owe GST on the first $1.06 million, but will owe both gift tax and GST on the dollars over the $1.06 million.
The changing tax laws could make gifting in 2010 significantly more powerful than making like gifts in 2011. It is important for you to be ready to make gifts before the end of the year to take advantage of historically low gift tax and GST rates.
Take a look at this article to learn more about the GST Repeal.
For questions or to review important Estate Planning opportunities please contact Douglas Kaune, Esq.