Under former law, in an estate that might exceed $3.5 million, the Marital Deduction Trust should be further divided into a Generation Skipping Exempt Trust and a Nonexempt Trust. If it is necessary to shelter money from the generation skipping penalty tax, and this division of the estate would preserve this benefit. A Generation Skipping Exempt Trust operates on the same principal as the Credit Shelter Trust and is designed to skip estate taxes in lower generations. As the estate tax law may change in the future to where dividing trusts into different parts is advantageous, our Will forms provide express authority for this to be done.
The GST amount is not subject to estate tax or GST tax in the estate of the person creating the trust to the extent it is less than the estate tax applicable exclusion. It is not ever subject to estate tax again (or to GST tax at all), so long as it is held in trust. It can be held in trust for as long as 21 years after the death of some person living at the death of the person creating the trust. This means estate tax can be skipped in your estate, your children’s estates, and possibly your grandchildren’s estates, particularly if you have grandchildren living at your death. If any of these people need access to the trust in the interim, then it will be there for them. If not, it will be available to the next generation free of estate tax. The reason for the GST tax is to limit the use of this technique to trusts under a certain size.
BASIC ESTATE PLANNING DOCUMENTS
Generation Skipping Transfer (“GST”) Tax Planning