Heard of the 'Generation Skipping Transfer Tax'? I hadn't till today talking to my county judge.

[montieg]

He said he was looking for an administrative probate judge for a new law from the feds. Now a person with an estate affected by the estate tax but small enough that legal shenannigans are too expensive ( I guess Bill Gates could, too) can create a "Generation Skipping Transfer Trust". The inheritor doesn't have to pay any tax and can then do his/her own GSTT for their children and so on so they NEVER pay an estate tax. Judge said it was passed late in the last session. Quietly. The rethug bastards have pundered our nation and set it up so they can continue to do so forever.

[napi21]

1. I never heard of it, but it was apparently passed in 1986.

http://www.nysscpa.org/cpajournal/old/10691665.htm

Abstract- The Tax Reform Act of 1986 created a Generation Skipping Transfer (GST) Tax, which requires the preparation of up to three new IRS forms. The GST Tax applies to transfers to or for the benefit of individuals who are two or more generations below that of the transferring taxpayer. Direct skips are transfers made directly to skip persons through either an inter-vivos or a testamentary transfer. The GST Tax is calculated by multiplying the highest estate tax rate and the distribution, taxable gift, or termination. Taxpayers are allowed an exclusion of $1 million during their lifetime. Inter-vivos transfers require a filing of Form 709, the Gift Tax Return. Terminations require the filing of Form 706GS(T), the GST Tax Return For Terminations. Distributions require a notification to the IRS with Form 706GS(D-1), the Notification of Distribution From a Generation Skipping Trust.

[Warpy]

2. Yep, came across that stinker when I was doing the

inheritance tax form last summer. I think it's the reason that form comes out and tells you to hire a professional. They don't want ordinary folks to notice that shit because some of us actually know what it means.

It means that estates are passed down the line intact, "entailed" in European speak, to a following generation of heirs, meaning grandchildren. That's great for people who own houses that have appreciated on paper beyond belief because they were ordinary getaway shacks that happened to be in places like Vail and Telluride that were discovered by the rich and famous. It will preserve the real estate for subsequent heirs until values get more sensible. That's the up side.

It could conceivably be used to pass huge fortunes down intact, also. The tax would be payable by the grandchildren when they inherit unless they do the same thing. Meanwhile, everybody gets to live on the income generated by the estate, which was the idea when the aristocracy in Europe did it that way.

A better idea would be to exempt real estate held in a family for more than 50 years or more than two generations, but no GOP will ever give ordinary people a nickel that they don't give a plutocrat a zillion bucks for.

It needs to be overturned.

[HamdenRice]

3. Here's how it works

I won't go into the details because you have to understand some very complicated concepts involving trust interests. But here is the basic idea:

Let's say John Doe has an estate that is taxable under the estate tax, and is an even $10 million. If he were to pass it on to his son, John Doe Jr. it would be taxed once. When Junior dies and passes it to Doe III, it would be taxed again, and so on as it is passed to each generation.

Generation skipping trusts get around this by giving interests in the trust to all the generations NOW. The generation skipping tax is based on the idea that if it were not for these "tricks" this money would be passed through each generation and taxed to each generation.

Here is how a generation skipping transfer occurs. John puts $10 million in trust. Trusts allow settlors to create exotic interests such as life estates and contingent remainders. A life estate is an interest that exists only for a person's life. A contingent remainder is an interest that comes into possession only on the happening of a contingency, such as survival of a prior life estate.

John's trust will say, I give a life estate in the $10 million to John Doe Jr, and a contingent remainder in life estate to John Doe III.

The idea is that John Doe's estate will "skip" a generation of taxation when it is passed from junior to III. That's because Junior did not pass property to III. His interest disappeared at his death and III's came into existence.

To prevent generation skipping trusts, the feds came up with the idea that if you create a life estate and contingent remainder in subsequent generations, that transfer would be penalized with a generation skipping transfer tax.

This encouraged people to pass their property outright to their children so that when their children died the estate would be subjected to tax again.

But there was always a loophole that allowed an exemption. So John Doe could give up to, say, $2 million to his grandchildren outright or in trust, without having to pay the penalty. That amount is set to rise, then be eliminated altogether in 2011 and then stupidly, in 2012 come back in full force.

The Bush administration did not want to project how much revenue would be lost by eliminating the estate tax for good, so they came up with the incredibly stupid idea that the repeal is temporary -- ie, each year the exempt amount goes up, then it disappears in 2011, and comes back in full force at 2001 levels in 2012.

This means that rich people need to die off (or their children need to kill granny) in 2011 to take full advantage of the benefits.

[Geoff R. Casavant]

4. Pity You Aren't Closer to Houston

I wouldn't mind being an administrative probate judge. Not at all.

The GST has been around for 20 years -- it was designed as a way to encourage folks to pass their estates to their children rather than their grandchildren, by taxing the bejeezus out of estates that went directly to grandchildren.

But like the estate tax itself, 99% of folks who die never have to worry about it.