{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture notes 12-5-14 (1) - 1 FEDERAL GENERATION SKIPPING...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 FEDERAL GENERATION SKIPPING TAX (GST) : The fundamental policy objective of wealth transfer taxes is to tax large estates each time they pass from one generation to the next. This objective is only met when a tax specifically addresses the generational relationship between the giver and the beneficiary. The GST is designed to meet this objective by taxing transfers from a giver to a recipient who is two or more generations younger than the giver. Persons who are two or more generations younger than the giver are known as skip persons . GST Lifetime Exclusion: Lifetime exclusion in 2014 is $5,340,000 Derived from a GST tax credit equal to $2,081,800 in 2014. NOTE: The GST tax credit is separate from the unified tax credit which applies to lifetime transfers as well as transfers at death. Note that after the exemption the GST tax rate in 2014 is 40%. And that is on top of any gift or estate tax due on the transfer! Predeceased Ancestor Exemption : This rule “moves up” a younger generation if the parent in the line of descent dies before the transfer (potentially avoiding “skip” status). In the case of a trust, the parent must have been deceased at the time the trust is first subject to transfer tax . Gifts covered by annual gift tax exclusion : Also not subject to GST therefore do not use up any of the giver’s lifetime GST exclusion. Essentially the annual exclusion applies for GST also!
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 EXAMPLE : Rosa first gave taxable gifts in 2009 when she gave at total of $3,300,000 in taxable gifts to her three children. In 2014, Rosa gave $2,000,000 each to her five grandchildren as well as $10,000 each to eight grand nieces and grand nephews . 2014 was the first year that Rosa made taxable gifts to “skip persons”. Total Current year’s gross gifts 10,000,000 Less Annual exclusions and deductions 70,000 Current taxable gifts 9,930,000 Plus total prior taxable gifts 3,300,000 Total taxable gifts 13,230,000 Calculate tentative tax on total taxable gifts* 5,237,800 Less tentative tax on total prior taxable gifts ** 1,265,800 Tentative tax on current taxable gifts 3,972,000 Less unused unified gift credit *** 816,000 Current gift tax 3,156,000 *tentative tax total gifts = 345,800 + .40(12,230,000) = 5,237,800 **tentative tax on prior gifts = 345,800 + .40(2,300,000) ) = 1,265,800 ***Unused unified gift credit = $2,081,800 – 1,265,800 = 816,000 GST Tax Calculation: Total current year gross gifts to skip persons 10,000,000 Less Annual exclusions and deductions 70,000 Current taxable gifts to skip persons 9,930,000 Plus prior taxable gifts to skip persons 0 Total taxable gifts to skip persons 9,930,000 Calculate tentative GST on total taxable gifts* 3,917,800 Less tentative GST on total prior taxable gifts 0 Tentative GST on current taxable gifts 3,917,800 Less unused GST credit 2,081,800 Current GST 1,836,000 *tentative GST total gifts = 345,800 + .4(8,930,000) = 3,917,800 Total tax on 2014’s $10,000,000 in gifts to skip persons!!! $4,992,000
Background image of page 2
3 ALLOCATION OF DEATH TAXES – How should estate tax liability be allocated among potential beneficiaries of an estate?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}