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What Is the Generation-Skipping Transfer Tax?
- May 17th, 2013
The estate tax gets all the press, but if you are leaving property to a grandchild, there is an additional tax you should know about. The generation-skipping transfer (GST) tax is a tax on property that is passed from a grandparent to a grandchild (or great-grandchild) in a will or trust. The tax is also assessed on property passed to unrelated individuals more than 37.5 years younger. Like the estate tax, it is currently repealed, but is scheduled to return in 2011.
The GST tax was designed to close a loophole in the estate tax. Normally, grandparents would leave their estates to their children, incurring estate taxes. Then the children would pass on the estates to the grandchildren, incurring estate taxes again. Wealthy individuals realized they could leave their estates to their grandchildren directly and avoid one set of estate taxes. Congress established the GST tax to prevent this by taxing transfers to related individuals more than one generation away and to unrelated individuals more than 37.5 years younger.
Local Elder Law Attorneys in Ashburn, VA
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
Hale Ball Carlson Baumgartner Murphy PLC
Jean Galloway Ball is certified in Elder Law by the National Elder Law Foundation. She is a 1977 honors graduate of the National Law Center, George Washington University, and she did her undergraduate work at the University of California at Berkeley, graduating Phi Beta Kappa in 1971. She is admitted to practice in Vir...
Hammond and Associates, LLC, Elder Law, Estate Planning, Wills, Trusts, Probate
For Jeffrey Hammond, the practice of Elder Law is personal. Jeff’s many years of experience in law and in business did not prepare him for the crisis he faced in 2005 and 2006 when his father suffered a stroke and both of his parents suffered from dementia and other medical problems. At that time, Jeff began an i...
A GST tax is imposed even when property is left in trust for a grandchild. For example, suppose a grandparent sets up a trust that leaves income to her children for life and then the remainder to her grandchildren. The part of the trust left to the grandchildren will be subject to a GST tax.
The GST tax has tracked the estate tax rate and exemption amounts. In 2009, the federal government exempted $3.5 million from the tax and the tax rate was 45 percent. The GST tax expired in 2010 along with the estate tax, but it is scheduled to return in 2011. Unless Congress acts in the meantime, the 2011 GST tax exemption amount will be $1 million and the tax rate will be 55 percent.
Last Modified: 05/17/2013