Generation Skipping Transfer Tax (GSTT)

Question 1

Generation skipping transfer tax (GSTT)

Answer 1

• tax individual wealth in excess of certain amount each time is passes to the next generation

Question 2

Skip person

Answer 2

• related beneficiary at least two generations younger than transferor (most are grandchildren)
• unrelated beneficiary more than 37 1/2 years younger than transferor
• deceased parent rule: if parent dies, all succeeding generations more up one generation

Question 3

Exemptions and exclusions from the GSTT

Answer 3

• first 12.920,000 is exempt from GSTT
• 17k exclusion available for direct gifts
• gift splitting allowed

Question 4

GSTT tax rate

Answer 4

• flat 40%
• gift taxes paid within 3 years of death will be brought back into estate but not the GSTT paid

Question 5

Direct skips

Answer 5

• GSTT imposed at time of direct skip
• transferor is liable for GSTT
• exemption automatic but not for indirect skips

Question 6

Taxable terminations

Answer 6

• termination of non skip persons interest in income or principal of a trust with the result that skip persons become the only remaining beneficiaries
• no exclusion since its future interest

Question 7

Taxable distributions

Answer 7

• any distribution of property out of a trust to a skip person (other than direct or taxable termination)
• when a trust has beneficiaries in two or more generations and trustee makes distribution to skip person, it is taxable
• no exclusion (future interest)
• skip person pays tax

Question 8

Summary of liability for payment of GSTT tax

Answer 8

• if transfer is direct, transferor pays
• if transfer is taxable termination, trustee pays
• if transfer is taxable distribution, tranferee pays

Calculate GSTT
1. Calculate estate tax due first - estate - exclusion = amount taxed at 40%
2. Estate -(Exclusion - estate tax due)
3. GST by 40%

Question 9

Executor/ PR - fiduciaries

Answer 9

• if court appoints person nominated in will to be personal representative, they are the executor
• if no valid will, court will appoint and administrator

Question 10

Trustee - fiduciaries

Answer 10

• trust specifies trustee’s fiduciary duties

Question 11

Guardian - fiduciaries

Answer 11

• guardian: personal interest
• conservator: financial interest
• both submit annual reports to court and may need court approval for certain expenses

Question 12

Duties of fiduciaries

Answer 12

• loyal to beneficiary
• duty to not self deal
• duty to preserve property and make it productive
• duty to be impartial toward all beneficiaries

Question 13

Breach of fiduciary duties

Answer 13

• beneficiary can take civil and criminal action