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{{Short description|United States tax system for transfers to younger persons}}
{{UStaxation}}
The U.S. '''
==
The first version of the generation-skipping transfer tax was introduced in 1976.<ref>The Tax Reform Act of 1976, Pub. L. No. 94-455, § 2006, 90 Stat. 1520, 1879−90.</ref> That version attempted to impose a generation-skipping tax exactly equal to the estate or gift tax that was avoided. In the above example, the Executor of the child's Will would have had to determine the estate tax, if any, the child's estate owed without regard to the existence of the trust. Then the Trustee of trust would have to use the child's Federal Estate Tax Return as the basis for recomputing the child's estate tax liability as if the trust property had been part of the child's estate.
==
That approach posed so many administrative problems that in 1986 [[United States Congress|Congress]] repealed the 1976 version and enacted a new generation-skipping transfer tax law.<ref>Tax Rm Act of 1986, Pub. L. No. 99-514, §§ 1431−33, 100 Stat. 2085,
2717−32.</ref> The effective date of the current GST tax is October 23, 1986. With few exceptions, the tax only applies to generation-skipping transfers made on or after that date.<ref>{{Cite web|url=https://www.law.cornell.edu/cfr/text/26/26.2601-1|title = 26 CFR § 26.2601-1 - Effective dates}}</ref> Irrevocable trusts created before September 25, 1985, are said to be "grandfathered" (no pun intended) and exempt from the GST tax.
The most recent version of the generation-skipping transfer tax, applicable to estate or gift transfers through December 31, 2009, did not attempt to impose a tax equal to the estate or gift tax that was avoided. Instead, the generation-skipping tax was imposed at a flat rate equal to the highest marginal estate and gift bracket applicable at the time of the gift, bequest, transfer or termination. In 2009, that rate was
In 2009, each taxpayer
In 2010, like the Federal Estate Tax, the generation-skipping transfer tax was briefly repealed. In
Starting in 2011, the GST exemption amount for generation-skipping trusts and for outright gifts to skip-persons, is $5 million per person (or $10 million for a married couple). The exemption amount is increased annually by an inflation adjustment as is the estate/gift tax exemption. With the enactment of the [[Tax Cuts and Jobs Act of 2017]], these exemptions were doubled through December 31, 2025. Thus, as of January 1, 2020, the GST exemption amount is $11.58 million per person (inclusive of the inflation adjustment) and twice that for a married couple. However, the increased exemption will revert to pre-2018 levels as of January 1, 2026, unless Congress changes the law. The tax rate remains 40% under current (post-TCJA) law.
== Advantages of using exemptions from the tax ==
*The trust will escape all transfer taxes when the children die and will pass tax-free to the grandchildren.
*The trust may be protected from the claims of creditors and, to some degree, from claims of ex-spouses. Had the trust property been left to the children outright, the property would be subject to such claims.
In some states, property acquired by gift or inheritance from a third party is not subject to division in divorce proceedings and would not be subject to claims by an ex-spouse.
The child may serve as trustee of the trust and hence control trust investment policy. If so, it would be necessary to limit the child's discretionary powers over distributions of income and principal by an "ascertainable standard" in order to avoid subjecting the trust to federal estate taxation at the child's death. Appointing the child as sole trustee may subject the trust to claims of the child's creditors.
There is support among more liberal politicians, such as [[Bernie Sanders]], to require a GST tax on long-term trusts, after 50 years for example.<ref>{{Cite web|url=https://www.forbes.com/sites/martinshenkman/2019/03/21/sanders-estate-tax-proposal-estate-planning-steps-to-take-now/#cd017ed99f5e|title = Sanders Estate Tax Proposal: Estate Planning Steps to Take Now| website=[[Forbes]] }}</ref>
==See also==
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<references />
[[Category:Inheritance tax]]
[[Category:Personal taxes]]
[[Category:Taxation in the United States]]
[[Category:Tax terms]]
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