19 Feb I Didn’t Know There Was a 40% Tax For Gifting To My Grandchildren: Justin Crain, Partner
Did you know that there is a 40% tax that may apply when you give gifts to your grandchildren or great grandchildren? This federal tax is called the Generation-Skipping Transfer tax (GST tax). The GST may apply on gifts made during life and after death. It is separate from (and may be in addition to) federal estate and gift taxes.
The reason this tax exists is because there was a concern that some people would avoid taxes by gifting to multiple generations all at once or via trust and would therefore avoid the multiple transfer taxes that would normally apply. Multiple transfer taxes apply in situations where a parent leaves assets to a child (taxed at that parent’s death) and then when that child dies and leaves assets to their children. Without the GST tax, someone could leave familial assets to multiple generations or to a trust and avoid additional taxation.
The GST tax exists to prevent wealth from avoiding additional transfer taxes by skipping over generations of beneficiaries. For example, the GST tax exists to tax property a second time that would have otherwise been taxed once at a person’s death if the deceased person left assets to generations younger than his or her children.
The good news for many people is that the current GST will not apply even if you decide to leave assets to your grandchildren. If you give less than $11,400,000 to a grandchild, then the 40% GST tax will not apply. Your gifts would have to surpass $11,400,000 before the GST tax would apply.
Are you unsure of the tax implications surrounding your estate plan? Speak with one of our attorneys and set your mind at ease.