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Old 02-13-2016, 10:30 PM
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How to calculate Generation Skipping Transfer Tax?

I honestly googled GSTT. Geeee. hard to understand. It says double, but from what basis? I will try to make really simple #s. Pls give me general idea how to calculate this? Grandpa placed CA house in revocable trust. $400K in 2012. Grandkids (three: 10,4,2 yrs) are beneficiaries. I am (father, skipped generation) is trustee. Trust says: corpus to be distributed equally among beneficiaries after my (beneficiaries' father, settlor's son) death. Say, Grandpa will die in 2040. House value at this time $500K. I will die in 2060. House value at this time $600K. How much beneficiaries will pay? Grandpa is Non resident alien; he is not allowed same # of deductions as US citizens. Only 60K is deductible. Kids and I are citizens. As I got it, grandkids will have to pay double: estate tax + GSTT (at higher rate -- about 40%). Is it like: $600K minus $60 and two times 40%?



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Old 02-14-2016, 11:09 AM
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I honestly googled GSTT. Geeee. hard to understand. It says double, but from what basis? I will try to make really simple #s. Pls give me general idea how to calculate this? =>>>>>>>>>>>>As said, only a few Americans? be subject to GSTT.


Grandpa placed CA house in revocable trust. $400K in 2012. Grandkids (three: 10,4,2 yrs) are beneficiaries. I am (father, skipped generation) is trustee. Trust says: corpus to be distributed equally among beneficiaries after my (beneficiaries' father, settlor's son) death.=====>> The assets of a revocable trust are considered the property of the grantor, your father until his death; A trust may earn income in the form of interest on funds held in a bank account. since your father create a revocable trust, known as a grantor trust by the IRS, all trust income is taxed as your father?s personal income, and he must report it on his return even if it remains in the trust. Your father must also complete a small identification section of Form 1041 and file it, although you father doesn't have to report trust income.as said before, the transfer of assets to the trustee/beneficiaries of a revocable trust, is a taxable event resulting in gift tax liability. As of 2016, the gift tax exclusion is $14K I guess per year per beneficiary. The amount of any gift that exceeds $14K is taxable at a maximum rate of 35 percent. You must file the gift tax return, Form 709, only if you actually owe gift tax. The recipient of a gift is never liable for gift tax.


Say, Grandpa will die in 2040. House value at this time $500K. I will die in 2060. House value at this time $600K. How much beneficiaries will pay?
I. ---->> in general, GST Tax = Taxable Amount x Applicable Rate (=Maximum Federal Estate Tax Rate x Inclusion Ratio) ;Maximum federal estate tax rate is a set number, so the variable is the inclusion ratio which is 1 ? Applicable Fraction.So you must first know the applicable fraction. To know the applicable fraction, however, you must first gain an understanding of the GST exemption and how it is applied to GST transfers. like the estate and gift tax ,the GST tax has an exemption, as said below. the exemption was $5.45 M for 2016. The GST exemption is used for both lifetime gifts and transfers at death. Like the gift/estate tax exemption, using the GST exemption for lifetime transfers reduces its availability at death on a dollar-for-dollar basis. If a person makes lifetime GST gifts of 600K, if this person had died in 2016, the amount of GST exemption available would have been $4.85M million ($5.45 million exemption - $600K used during life).

For most of Americans as said, the sizeable GST exemption means that GSTs will never exceed the lifetime GST exemption, hence the reason why so few estates will ever pay a GST tax.







Grandpa is Non resident alien; he is not allowed same # of deductions as US citizens. Only 60K is deductible. Kids and I are citizens. =====>>>>>>>>>correct up to $60K is deductible for the nonresident settler.

As I got it, grandkids will have to pay double: estate tax + GSTT (at higher rate -- about 40%). Is it like: $600K minus $60 and two times 40%?======>>no; . Each individual is now given a GSTT lifetime exemption amount of $5.45M million for 2016 with an annual inflation adjustment

this means that for exemption form gst taxes, the amount that can be directly transferred to his grandchildren without incurring a federal generation skipping transfer tax is $5.45Mindexed for inflation for 2016.



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