GST tax requires special planning — Sharing wealth with grandchildren and beyond
Abstract: Designed to ensure that assets are taxed at each generational level, the generation-skipping transfer (GST) tax generally applies — in addition to gift or estate taxes — to transfers that skip a generation. But the GST tax rate is scheduled to go up, and the tax exemption to be sharply reduced, beginning in 2013, making tax planning especially urgent. This article looks at the three types of generation-skipping transfers; how automatic allocation of the exemption to certain transfers can be hazardous for some; and the benefit of a “dynasty” trust. A sidebar discusses the possible advantages of splitting a trust in two.