The Generation-Skipping Transfer Tax is a tax that was created by the United States Congress in 2004. The GSTT is a tax on any amount of money transferred to a “skip person” before that person reaches age 21. This means that if you were born after January 1, 2002, and you inherit money from your parents or grandparents, you will owe the GSTT when you receive it from them.
This law prevents trusts from giving money away to children or grandchildren who are too young to benefit from it. It also prevents wealthy people from passing their money down through generations without paying significant taxes on it.
In this article, we will look at the GSTT in greater detail. Stay with us as we look at this important tax and the rationale behind it.
The Idea Behind GSTT
The U.S. Congress created the Generation-Skipping Transfer Tax (GSTT) in 1986 to help prevent wealthy parents from avoiding estate taxes by giving their assets to their children instead of passing them on to heirs. It was designed to prevent those sorts of arrangements from being used as tax shelters, often called “generation-skipping.”
The idea behind GSTT is that wealthy parents want to give their assets away to their children so they can avoid paying estate taxes, but they don’t want those assets actually getting passed on until well after they die. Otherwise, there’s a chance that some of them would be subject to estate taxes when they die.
In order for this plan to work, the parents would have to transfer money from one account or investment vehicle into another account or investment vehicle before dying; after death, the money would then be transferred back into the other account or investment vehicle where it belongs.
Transferring Property Across Generations
There are several ways to transfer property to your children. Each method has its own advantages and disadvantages, so it’s important to choose the method that will work best for your situation.
- Transferring Property Using a Will: The simplest way to transfer property is by using a will. A will transfers all of your assets and debts from one person (you) to another person (your children). You must have already named your children as beneficiaries or executors to make this transfer effective.
- Transferring Property Using a Trust: Another option is to transfer property through a trust. This type of trust allows you to keep control over your assets while still giving them away after your death, which can be beneficial if you want more control over how those assets are used after you’re gone but don’t want them distributed throughout the family until then (such as when only one child needs money and they aren’t ready yet).
- Transferring Property Using an Irrevocable Trust: If none of these options are right for you and/or your situation, then an irrevocable trust may be what you need in order to make the process simpler and quicker.
We hope the information in this article can help you understand more about the Generation-Skipping Transfer Tax and some of the steps you can follow to implement alternative means of transferring your savings to the next generation.
You should contact the knowledgeable lawyers at the Bourassa Law Group as soon as possible if you want to know more about the GSTT. Call us at (800)870-8910 for a free consultation!
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