The new tax bill contains a little-known loophole that, if you act quickly, could save a big tax bite for those who want to make substantial gifts to grandchildren.
The new tax bill contains a little-known loophole that, if you act quickly, could save a big tax bite for those who want to make substantial gifts to grandchildren. The Generation Skipping Tax (GST), in place since 1986, is a second layer of tax applied to gifts that “skip” a generation – for example, gifts made to grandchildren if the parents are still alive. The loophole in the new tax bill not only confirms a 0% GST for all of 2010 (making the law more clear) but widens that loop hole substantially, albeit temporarily, through the end of this year, according to noted estate planning attorney Jonathan Blattmachr, as quoted recently in Forbes.
The new loophole is this: the money doesn’t (as most planners had believed) have to be distributed outright to the grandkids to qualify for the 0% rate. Instead, according to the fine print in the tax deal, it can be put in trust for them, Blattmachr says. That means, he explains, that money can be taken from an existing multigenerational trust, declared subject to the 2010 GST tax, and deposited in a new trust for the grandkids’ benefit, with the GST tax now pre-paid at a 0% rate.
Since the GST rate goes up on January 1st to 35 percent (and could go as high as 55 percent in 2013, when the new tax bill expires), the planning window is a narrow one. The opportunity to “prepay” the GST at a 0 percent rate before the end of the year, is, as Blattmachr says, perhaps a once-in-a-lifetime opportunity.
Caveat: There are, of course, limitations to this loophole, and certain restrictions apply. You can learn more by reading the entire Forbes article. But, if you think this strategy that could benefit your family estate planning, be sure to give us a call right away to discuss your individual situation.
For mopre information on estate planning see our website at Maryland Estate Planning
Tags: estate planning, generation skipping tax, GST tax, tax planning