As Congress begins deliberation on the next stimulus plan, they must also figure out how to pay for the stimulus.
One of the ways to pay for stuff would be to reduce the estate exemption. Currently, the estate and generation skipping tax are the same amount. However, most of the new proposals decouple these two. What is Generation Skipping Tax?
The Generation Skipping Tax (GST) is applied when a trust is designed to transfer wealth to someone who is 37.5 years younger than the grantor. Basically, if the trust is designed to go to the grandkids or beyond, GST is applied. It’s a second layer of tax and the tax rate is 40%. You guessed it, that’s a heavy tax to pay to make sure the grandkids get something! The good news is that currently the GST exemption is the same as the estate exemption, $11.7M. The bad news is that new proposals reduce the estate exemption to $3.5M and the GST exemption to $1.0M. For example, if you give away $3.5M to your kids in a Dynasty-style trust, there’s no estate tax, but there is a GST tax of 40%!
This is the Year of the Plan, and this is avoidable. Are you ready?
