William Byrnes' Tax, Wealth, and Risk Intelligence

An estate has asked the U.S. Supreme Court to consider whether the GST tax “grandfathering exemption” is ambiguous.  Two circuit courts of appeal have held that the statute is ambiguous while another two circuits hold that it is plain and unambiguous.

The Supreme Court is being asked to settle the split between the circuits.

The Generation Skipping Trusts

A generation skipping trust is a trust designed to shift property from one generation to another without passing the property through an intervening generation—e.g. a trust that transfers property from grandparents to their grandchildren.  Generally the “child beneficiaries” (children of the grantor) take only an income interest in the trust with grandchildren taking a remainder interest in the trust.  When the child beneficiaries die, trust assets will be transferred to the grandchildren.  Assuming the child beneficiaries took only an income interest in the trust and did not hold any incidents of ownership in the trust, the trust will not be included in the children’s estates when they die.

So, for example, if Grandfather funds a trust will for $5 million, naming his three adult children as income beneficiaries and his grandchildren as remainder beneficiaries, the trust is a generation skipping trust.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of the generation skipping transfer tax, see Advisor’s Main Library: Section 2.1 A—Generation Skipping Transfers Explained

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