We are already Mid-November and nothing has happened legislatively regarding the federal estate tax exemption. Although the Generation-Skipping Transfer (GST) Tax is independent of the federal estate tax, legislative changes to the exemption amounts would likely occur at the same time. Since 2004, the GST exemption equaled the estate tax applicable exclusion amount. In 2009, the GST exemption was $3,500,000. In 2010, the GST was repealed, and in 2011 the tax will be back with an exemption amount of $1,060,000,indexed for inflation.
The GST tax is imposed on asset transfers to "skip persons". "Skip persons" are generally grandchildren and later descendants of the donor, if the donor's child, who is the parent of the donee is living.
The government's concern of generation-skipping transfers is best shown by example.
Rich Guy-àGuy's son-àGuy's grandson-àGuy's great grandson
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First Estate Second Estate Third Estate
In the normal case, you would have 3 separate estates from which the government could tax. However, where Rich Guy's estate is placed in trust with son and grandson having right to income with principal going to great grandson, Rich Guy gets similar result and 2 generations of estate tax skipped.
Will the federal government act in the short term to change the GST exemption amount or will it go back to its 2001 level?