Generation-skipping involves a transfer tax
Tax Tip of the Week
July 28, 2014
Generation-skipping involves a transfer tax
In addition to estate and gift taxes, a third tax applies to assets you transfer to someone two or more generations below you, such as your grandchildren. This "generation-skipping transfer (GST) tax" applies to trusts and individuals, and has features similar to the estate tax rules — and some important differences.
For example, under both sets of rules you can make lifetime and testamentary tax-free transfers up to a specified "exemption." While the amount is the same for both taxes ($5,340,000 for 2014), the exemptions are unrelated.
Another similarity: You and your spouse can each claim a GST exemption. That means with planning you can make gifts to your grandchildren or other "skip" beneficiaries of up to $10,680,000.
However, the estate tax rule of sharing unused exemptions between spouses (known as portability) does not apply to the GST exemption.
If you make generation-skipping transfers for which regular gift tax is not due — such as gifts with a total combined value of less than $14,000 during a year — you won't pay GST tax either. That's also true for tuition sent directly to a qualified school and medical expenses paid to healthcare providers.
Finally, while the federal estate tax rate varies depending on the amount of your taxable assets, generation-skipping transfers are taxed at a flat 40%.
Please call if your estate plan includes bequests and gifts to your grandchildren. We can make sure you're not surprised by an unexpected tax burden.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2014
July 28, 2014
Generation-skipping involves a transfer tax
In addition to estate and gift taxes, a third tax applies to assets you transfer to someone two or more generations below you, such as your grandchildren. This "generation-skipping transfer (GST) tax" applies to trusts and individuals, and has features similar to the estate tax rules — and some important differences.
For example, under both sets of rules you can make lifetime and testamentary tax-free transfers up to a specified "exemption." While the amount is the same for both taxes ($5,340,000 for 2014), the exemptions are unrelated.
Another similarity: You and your spouse can each claim a GST exemption. That means with planning you can make gifts to your grandchildren or other "skip" beneficiaries of up to $10,680,000.
However, the estate tax rule of sharing unused exemptions between spouses (known as portability) does not apply to the GST exemption.
If you make generation-skipping transfers for which regular gift tax is not due — such as gifts with a total combined value of less than $14,000 during a year — you won't pay GST tax either. That's also true for tuition sent directly to a qualified school and medical expenses paid to healthcare providers.
Finally, while the federal estate tax rate varies depending on the amount of your taxable assets, generation-skipping transfers are taxed at a flat 40%.
Please call if your estate plan includes bequests and gifts to your grandchildren. We can make sure you're not surprised by an unexpected tax burden.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2014
