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| WHEN TAXES ALMOST EXCEEDED THE ESTATE'S VALUE An erect and convivial 84-year-old retired physician came in for estate planning and showed me his net worth. "I've got about $3 million," he said. "My wife has no interest in finances. So, I have kept all the money and property in my own name. I own everything." He continued, "My son and daughter are wonderful. He has plenty and she married a rich man. So, they don't need anything. Consequently, I have decided to leave everything to my grandchildren." I interjected, "Doctor, have you ever heard of Generation Skipping Transfer Tax?" Perplexed, he replied, "No. I can't say that I have." "Well, let me tell you about it," I said. "Generation Skipping Transfer Tax ... or GSTT ... is imposed on all gifts and legacies that go beyond the immediately succeeding generation. In other words, GSTT is imposed on all transfers to grandchildren and great-grandchildren." "And the tax is as high as 140 percent," I concluded. "How can a tax be that high?" he asked. "As strange as it may seem," I replied, "this is the one place that I know of in the tax code where tax is imposed on tax. You actually pay the tax twice." I calculated the tax to show him. It came out to nearly $2.8 million on a $3 million estate. It almost exceeded the total value of the estate. Fortunately, I was able to show him how to accomplish his goals without triggering GSTT. By giving $1 million to his wife ... and by letting her transfer it to the grandchildren, both he and she could take advantage of the $1 million exemption from GSTT. So, there would be no GSTT on $2 million. Then, I suggested other means of giving to his own children and letting them (at their option) give to the grandchildren. The good doctor was pleased that we showed him how to avoid GSTT. |
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