Financial Planning

Generation-Skipping Transfer Tax Planning

In large estates, many wealthy grandparents leave everything to their children, and the children pay the estate taxes. Later, when these children die, estate taxes again have to be paid before assets can be given to their children. Having to pay estate taxes twice on some of the same assets can put a huge bite on the assets that are left to grandchildren. It is often more efficient to give assets straight to the grandchildren. Assets that are given this way are only subject to estate taxes once.

This strategy is often used when the estate is sufficiently large to provide adequately for the children, as well as the grandchildren. Keep in mind that there is over a $1,010,000 limit for generation skipping from each spouse. This means that a husband and wife together could give a total of $2 million dollars to grandchildren (each grandchild could get a fraction of this figure). If you exceed generation skipping limits, you are subject to a substantial generation skipping tax.

Many estate planning experts find the best way to significantly increase the generation skipping limits is by leveraging up the amount of the gift with life insurance. Annual gifts given to grandchildren would also increase, over time, the amount that could be "skipped."

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