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| GENERATION-SKIPPING TRANSFER TAX In addition to the concerns you have about federal estate tax ... and about state and local estate and inheritance taxes, you need to know about another transfer tax which is called "Generation Skipping Transfer Tax (GSTT)." Because of greater American longevity, many families have four generations living at one time; five generation families are not rare. Federal tax planners believe that the federal government deserves its tax each time one generation dies. If a person owning a large taxable estate were to "skip" down one or two generations, giving or leaving his estate to grandchildren or great-grandchildren ... or to trusts for their benefit, he would avoid one or two levels of taxation. In the minds of federal officials, this strategy would deny the government its tax ... or would substantially delay the imposition of the tax. Recognizing that people might adopt such a strategy ... and calculating that the government might "lose" substantial tax revenues, federal officials created another tax which applies to "skips," the Generation Skipping Transfer Tax. To discourage skips, the tax was set at an unbelievably high level. It is so high that one noted writer has calculated the tax at 140%. That's right: one hundred and forty percent. However, the law allows an exemption of $1 million from GSTT. So, a grandmother can give her granddaughter as much as $1 million, in life or at death ... or in a combination of lifetime and at-death transfers ... and pay no GSTT. The rules are complex and you will need your accountant's help; but, if you have a highly taxable estate, you may profit by use of your GSTT exemption. Of course, GSTT does not apply to your charitable gifts. Your gifts to "The Foundation" are exempt from both federal estate tax and from GSTT. |
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