Why Today's Practitioner Should Care About Generation-Skipping Transfer (GST) Tax

Webinar video and slides

Intro

Recently, I conducted a webinar titled Why Today’s Practitioner Should Care About GST Tax. Many of you were able to attend, and I thank you for your interest and feedback.

For those who were not able to attend, I have provided the video and slides after the paywall below.

But, before the materials, I want to answer the premise of the webinar- why should you care? After all, with a record-high gift/estate tax basic exclusion of $13,610,000 for each U.S. citizen and resident, along with a parallel GST exemption of the same amount, it is rare that most estate planning clients would be worried about estate, gift, or GST tax. Even post-sunset, these taxes will remain just an aspirational problem for most clients and practitioners alike.

This is the current state of affairs for wealth that is owned individually.

However, if you assist trustees or beneficiaries of trusts, GST tax is a real concern from a compliance and liability standpoint for wealth that is currently held in irrevocable trusts. Why?

To understand, first I want to present (for the first time) a new way to frame GST tax planning. If you are fan of Charles Dickens, you no doubt are familiar with the three ghosts who visit Ebenezer Scrooge in A Christmas Carol. But, in this vein, we can consider GST tax as having three ghosts which can haunt our clients or their heirs:

• The ghost of past GST tax deals with GST tax that has been deferred from a time when the GST tax exemption was much lower. In fact, from 1986-1998, the exemption was only $1,000,000. Inflation-adjustments to this $1,000,000 base kicked in after 1998, but only continued through 2003 - after which the GST tax exemption was pegged to the estate and gift tax applicable exclusion amount. This is the ghost we discuss in this webinar and associated materials.

• The ghost of present GST tax deals with immediate GST tax consequences - usually when we make a direct skip transfer, or create Crummey powers for skip persons.

• The ghost of future GST tax can haunt our future beneficiaries (born or unborn), and usually considers current allocation strategies for GST exemption to indirect skip transfers to offset future GST tax. This ghost also involves GST trust elections and planning around an estate tax inclusion period, or ETIP.

For existing trusts, the ghost of past GST tax has many complicated considerations and decisions. Long story short, tax planning is alive and well for many older trusts - especially those that are going through termination, division, and appointment events as part of the great intergenerational wealth transfer.

The Video