The Grandparent Tax

Copied and Pasted by Rie Umano

LEAVING LOTS OF money to grandchildren, and skipping the generation in between, used to be a nifty way to beat estate taxes. That way, the money was subject to estate tax just once, when the grandparent left it to the grandchild. Otherwise, it would have been taxed when the grandparent left it to his child, and then again if that child preserved the money to pass along to his own children.

But eventually Uncle Sam realized he was getting cheated out of his second bite of the apple. And in 1986, the generation skipping transfer tax, or GST, was created. It makes sure the Internal Revenue Service gets that second bite after all.

So even after you've set things up to take advantage of the various gift and estate tax loopholes, your job isn't quite finished. You still have to take a step back and make sure you've successfully dodged the GST tax as well.

GST Tax Basics
If you have no intention of ever leaving any money or assets to your grandchildren, great-grandchildren or generations after, you can probably quit reading this article. The GST tax only hits wealth transfers to individuals more than one generation beyond you. But beware, that includes any primary or contingent beneficiaries to any trusts you create.

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