If you have never heard of the estate tax but not the generation-skipping transfer (“GST”) tax you are not alone. Nevertheless, you should become familiar with it since, as of 2011, it has returned and its effect will be felt by estate plans across the nation.
What is the GST tax?
When property is passed from a grandparent to a grandchild or great-grandchild via a will or trust, the generation-skipping transfer tax will be imposed upon that transfer. The tax will also be assessed on property transfers between unrelated individuals where the transferee is at least 37.5 years younger than the transferor.
What is the purpose of the GST tax?
The purpose of the GST tax is to eliminate a loophole in the estate tax. The usual course of estate transfers involves parents transferring their estate to their children. This transfer would encourage the imposition of the estate tax, just as the subsequent transfer between the children and their own children would incur the estate tax. Prior to imposition of the GST tax, wealthy families had figured out that they could bypass one estate tax assessment by skipping the middle step; that is, instead of parents transferring the estate to their children, they would instead transfer it directly to their children’s children (i.e., their grandchildren).
To learn more about this tax and how you may be able to take steps to gain tax efficiency when passing along resources to your grandchildren simply take a moment to set up a consultation with an experienced, licensed estate planning lawyer.