Many people are familiar with income and estate taxes but not many know what the generation skipping transfer (GST) tax is or how it can impact the monies you leave your heirs. The GST tax is imposed on monies you leave directly to grandchildren or to trusts that will ultimately benefit them. Think of it like this:
· Income tax is a tax on the income you earn during the year. You pay it every year so long as you have income.
· Estate tax is a one-time tax that is due nine months after someone dies if the estate assets meet a certain threshold. That threshold for federal estate tax purposes is $12,060,000 in 2022. If you die this year, assets over that amount will be taxed, and the tax rate can be as high as 40%.
· The GST tax is a 40% tax on assets if you “skip” your children and leave assets directly to your grandchildren or in trust for them. The amount of GST allocation that every person has is the same as the estate tax exemption amount, $12,060,000 per person in 2022. This often leads people to think that they are the same tax, when they are actually two separate taxes.
The GST tax is on top of the estate tax. When you die, your estate could be subject to a 40% estate tax (for assets over $12,060,000), and then the assets could be subject to a 40% GST tax if you skip a generation. For that reason, it is an important tax to pay attention to GST.
See three ways the GST Tax is imposed and read additional information here.
By Christine Fletcher – Contributor at Forbes
Published April 19, 2022