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Understanding the Generation-Skipping Transfer Tax: Strategies for Minimizing Its Impact

The Generation-Skipping Transfer Tax (GSTT) is a federal tax imposed on certain transfers of wealth between generations. It can significantly impact estate planning, and understanding its implications is crucial for those looking to minimize its effects. Heritage Law Office, with their experienced attorneys, can help you navigate the complexities of the GSTT and develop strategies to minimize its impact on your estate. Contact us either online or at 414-253-8500 to schedule a free consultation today.

What is the Generation-Skipping Transfer Tax?

The GSTT is a tax imposed on transfers of wealth that skip one or more generations. This tax is in addition to any applicable federal estate and gift taxes. The intent of the GSTT is to prevent the avoidance of estate taxes by transferring assets directly to grandchildren or other remote descendants, bypassing the intermediate generation.

Types of Generation-Skipping Transfers

There are three main types of generation-skipping transfers subject to GSTT:

  1. Direct skips: A transfer made directly to a "skip person," which is a beneficiary who is two or more generations younger than the transferor.
  2. Taxable distributions: Distributions from a trust to a skip person that are not direct skips.
  3. Taxable terminations: The termination of a trust's interests, either by death or other event, with the remaining trust assets passing to a skip person.

Exemptions and Exclusions

There are several exemptions and exclusions available that can help minimize the impact of the GSTT:

GSTT Exemption

The GSTT exemption allows an individual to make a certain amount of generation-skipping transfers without incurring the tax. This exemption is indexed for inflation and can be allocated to direct skips, taxable distributions, or taxable terminations. It is essential to consult with an experienced attorney to determine the most efficient way to allocate your GSTT exemption.

Annual Exclusion

The annual exclusion allows for the transfer of a certain amount per year to any individual without incurring gift tax or GSTT. This exclusion is available for direct skips but not for taxable distributions or taxable terminations.

Strategies for Minimizing GSTT Impact

There are several strategies that can be employed to minimize the impact of the GSTT on your estate, including:

  1. Allocation of GSTT exemption: Properly allocating the GSTT exemption among direct skips, taxable distributions, or taxable terminations can help minimize the tax impact on your estate.
  2. Leveraging the annual exclusion: Making gifts that qualify for the annual exclusion can help reduce the overall size of your estate and the corresponding GSTT liability.
  3. Utilizing trusts: Establishing certain types of trusts, such as dynasty trusts or generation-skipping trusts, can help protect assets from the GSTT and provide long-term benefits to your beneficiaries.
  4. Charitable giving: Making charitable donations or establishing a charitable trust can provide both tax benefits and help support the causes you care about.

How Heritage Law Office Can Help

At Heritage Law Office, our knowledgeable attorneys understand the complexities of the GSTT and can help you develop a comprehensive estate plan that minimizes its impact. Whether you need assistance with allocating your GSTT exemption, establishing a trust, or implementing other strategies to protect your assets, our attorneys are here to help. Contact us either online or at 414-253-8500 to schedule a free consultation today.

Heritage Law Office offers remote, phone, and online appointments, so you can receive expert estate planning services wherever you are.

Contact Us Today

For a comprehensive plan that will meet your needs or the needs of a loved one, contact us today. Located in Downtown Milwaukee, we proudly provide legal advice to those in Milwaukee County and surrounding communities.

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757 N. Broadway, Suite 300
Milwaukee, WI 53202
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Minneapolis, MN 55104
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