Sometimes it makes more sense to set up a generation skipping trust, particularly if the objective is to reduce the size of tax obligation among family members. This trust does this by directly placing assets with grandchildren and future generations rather than having them go through each successive generation, thus being taxed each time. According to a recent article, those who took advantage of a generation skipping trust saved between 18 and 40 percent on estate taxes, depending on the estate and how much was wealth was transferred.
Breaking it down
The following must apply for drafting a viable generation skipping trust:
Higher threshold under the Tax Cuts and Jobs Act
Whereas the tax-free threshold for generation-skipping trusts was set at $5.49 million in 2017, it was doubled to $11.2 million for individuals and $22.4 million for couples. It increases on a yearly basis to accommodate for inflation. The current law expires in 2026 unless Congress extends it or changes it.
Working with an attorney is always recommended
Attorneys with a background in tax law and estate planning can be a big help to individuals who wish to utilize a strategic transfer of funds to young family members and loved ones. The circumstances of each estate are different, yet a lawyer can provide useful guidance that directly addresses the needs of the client.
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