Wednesday, May 18, 2011 NEET Tips
NEET Tips answers questions posed by visitors to the NEET website
Do payments for education avoid generation skipping transfer taxes?
Yes, provided the payment for tuition is a qualified transfer falling under Internal Revenue Code Section 2503(e). Qualifying tuition payments are not treated as a transfer of property by gift, nor are they subject to the generation skipping transfer tax (GST).
GST exemptions apply to the annual gift tax exclusion (currently $13,000 per year) and direct payments for qualifying tuition or medical expenses under IRC 2503(e) because the GST rate of tax depends on the definition of the exclusion ratio. The exclusion ratio for direct skips that are nontaxable gifts is set equal to zero, therefore there is no tax on these transfers.
For more information on education payments, see the NEET article:
Unlimited Educational and Medical Payments Allowed Under Gift Tax Exemption Friday, March 11, 2011 Press Coverage of Estate Planning this Week (March 11, 2011)
Laura Saunders of the Wall Street Journal reports that the Administration's proposed 2012 federal budget would place limits on the length of Generation Skipping Transfer (GST) tax exemptions to 90 years. She states that chances of passage are slim, but if you are interested in creating trusts that exempt large sums from GST taxes over many generations, now may be the time to put the plan in motion. See Dynasty Trusts Under Attack (Mar. 5, 2011).
Elizabeth Ody of Bloomberg writes about another estate planning method that may become restricted in the near future. Ody writes that Grantor Retained Annuity Trusts (GRAT) have been used by some estate planning attorneys to pass investment gains from children to their parents or grandparents to allow a better quality of life in the parents’ final years. The goal is to allow the transfer without dipping into the child’s lifetime gift-tax exemption. See GRATs Let Children Pass Millions to Mom or Granny Free of U.S. Gift Taxes (Mar. 9, 2011). Friday, December 03, 2010 Press Coverage of Estate Planning this Week (December 3, 2010)
Ashlea Ebeling of Forbes writes about a one-time opportunity to make distributions from certain types of trusts that could avoid up to a 55 percent generation skipping transfer (GST) tax. Because the GST tax lapsed in 2010, alongside the federal estate tax, there may be an opportunity to make distributions from GST non-exempt trusts to grandchildren and other skip beneficiaries before the end of 2010, and thereby avoid the GST tax . See Payday for Trust Babies (Dec. 2, 2010). |