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GST Tax Planning

The goal in Generation-Skipping Transfer (GST) tax planning is to transfer assets, together with future appreciation, to or for the benefit of grandchildren and other “skip persons” without incurring GST tax. DESCRIPTION The GST tax is a flat transfer tax equal to the maximum federal estate tax rate at the time of transfer (currently 40% in 2015), imposed in addition to any gift and estate taxes due at the time of a “generation-skipping transfer.” There are three types of generation-skipping transfers: a “direct skip,” a “taxable termination,” and a “taxable distribution.” A “direct skip” is a transfer, subject to gift or estate tax, to a skip person A taxable termination occurs on the termination of an interest in property held in trust, unless: Immediately after the termination a “non-skip person”…

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Using GRATs in Wealth Transfer Planning

A grantor-retained annuity trust or “GRAT” can be very useful in transferring wealth in a tax-efficient manner. A GRAT is an irrevocable trust that allows individuals to transfer the future appreciation of assets to beneficiaries free of gift tax. Use of this technique essentially ‘freezes’ the value of the GRAT assets and takes advantage of the asymmetry between the income tax rules governing grantor trusts and the estate tax rules governing the includibility of assets in the gross estate. GRAT STRUCTURE The term, annuity schedule, and beneficiary of a GRAT are determined upon establishment. A GRAT term can be two or more years. The annuity amount that the Grantor receives will be calculated at establishment and can be “zeroed-out” to make certain no gift tax is due upon the establishment…

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The Advantages of Revocable Trusts

When considering the employment of trusts in an estate plan, strategies are often selected because of the tax savings or tax efficiencies that can be garnered. Revocable trusts are a glaring exception to this rule. There are no tax savings to be gained by creating and funding a revocable trust, nor any asset protections provided to its settlor. Rather, this type of trust is used to provide substantial, non-tax benefits to the settlor including continuity, flexibility, and privacy. REVOCABLE TRUST STRUCTURE A revocable trust is created by an individual (settlor) to hold property during their lifetime. Typically, the trust will provide that the trust property be managed for the settlor’s benefit. In many cases, the settlor will also serve as a trustee or co-trustee of the revocable trust during their…

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