Chapter 7: Estate Planning Issues related to GSTT and Income Tax Flashcards
What is Generation Skipping Transfer Tax?
A tax applied to transfers that are more than one generation away from the donor
What is a skip person?
a lineal descendant transferee who is two or more generations younger than the transferor. Or a nonlinear/unrelated transferee who is more than 37.5 years younger than the transferor.
What is a direct skip
A transfer to a skip person that is subject to federal estate or gift tax. If property is transferred to a trust, the transfer is a direct skip only if the trust is a skip person.
A transfer of wealth in which only skip persons have an interest
What is an indirect skip?
Any GST where at least one skip person and one nonslip person has an interest in the transferred property.
What is a generation skipping trust?
They are exempt from GSTT as long as no additions to the property have been made after Sept 25 1985
What is taxable termination?
When the nonskip person interests in the property have terminated - ex: when the nonskip person dies and all that is left goes to the skip person.
An actual distribution to the skip person does not have to be made for taxable termination to occur
What is a GSTT Exemption?
Equal to the federal gift/estate tax applicable exclusion amount. It can be reduced by the $15k exclusion.
What are taxable distributions in relation to GSTT?
Occur when a nonskip party still has an interest in the remaining trust property but a distribution is made to the skip party.
Ex: A mother and daughter have inherited a trust from grandma. A taxable distribution is a distribution to the daughter (skip party) while the mother still has an interest.
Who is responsible for paying tax in a direct skip?
The transferor. It’s due when the gift tax return is due –April 15 of the year following the year of transfer
Who is responsible for paying tax on an indirect skip transfer? When?
The skip person is responsible for filing the return and paying the GSTT on the distribution. The GSTT due on a taxable distribution is paid out of the trust
What are the deemed allocation rules?
Rules that state that the transferors unused GSTT exemption must be allocated to lifetime direct skips
What are the deemed allocation rules?
Rules that state that the transferors unused GSTT exemption must be allocated to lifetime direct skips
Is using the GSTT exemption mandatory?
No. Unlike the applicable credit amount that is used to keep a taxpayer from having to pay gift or estate taxes that would otherwise be due, use of the GSTT exemption for lifetime skips is not mandatory.
CRAT vs CRUT
CRAT - fixed annuity payment w reminder to charity. Additional contributions can’t be made
CRUT - variable annuity payment w remainder to charity
