A generation skipping transfer tax may be applied to your estate if you leave all or part of your estate to your grandchildren bypassing your own children. This tax can be very expensive and is also a separate tax from the federal estate tax. This tax will also take effect if you leave assets to anyone other than a relative who is more than 37.5 years younger than you are.
Becoming subject to this tax can happen intentionally by purposing skipping your own child in favor of your grandchildren, or unintentionally if you leave your assets to your child in a trust and they happen to die before you do and that trust transfers to their children, your grandchildren.
Currently there is an exemption to this tax in 2011, 2012 which amounts to the first $5 million of your estate. Good news for you and your spouse meaning you could leave up to $10 million to future generations without paying the tax. However, it is imperative to plan ahead to take advantage of this GST exemption.
When planning on setting up a trust for your grandchild or a combined trust for them and your child, you should consult with a professional estate litigation Attorney. A properly planned trust is the most effective way to get the maximum benefit from the tax exemption leaving your loved ones with as much of your hard earned estate as possible.
*This blog entry was not written by an Attorney and should not be constituted as professional legal advice.