Saturday, July 15, 2017
Advisors commonly overlook the generation-skipping tax (GST) when creating an estate plan.. This leaves many existing estate plans less tax-efficient than they could be. Dealing specifically with trusts, for GST tax purposes, any trust will be either GST exempt, GST non-exempt, or a mix of these two options. A trust can be totally exempt from GST tax in one of the following five ways: 1) it was grandfathered in, 2) it is a Gallo trust, 3) by transfers, 4) through affirmative allocation, or 5) a GST exemption was allocated to the trust. If a trust is not exempt from GST, the advisor must then determine the trust's inclusion ratio. This ratio essentially dictates what percentage of a trust will be subject to GST. Wading through these steps is technically onerous and can be difficult. Breaking down the process in this simplified manner may alleviate some of the complexities of the overall analysis.
See Nathan R. Brown & Brandon A. S. Ross, Diagnosing the GST Tax Status of a Trust, Probate & Property Magazine, July 2017.