1. ©2015, College for Financial Planning, all rights reserved. Session 7 Generation-Skipping Transfer Tax CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning

2. Session Details Module5 Chapter(s)1 LOs5-1 Identify the purpose and basic features of the federal generation-skipping transfer tax (GSTT). 5-2 Analyze a situation to identify types and consequences of transfers that are subject to the federal generation-skipping transfer tax (GSTT). 7-2

3. Generation-Skipping Transfer Tax (GSTT) Nature & Incidence Tax on transfer of wealth (during life or at death) to persons who are deemed to be two or more generations younger than the transferor GSTT in addition to any gift or estate tax due on the transfer GSTT exemption is same as estate tax exclusion amount; cumulative over a lifetime Taxed at top regular estate tax rate for year of transfer Exemption equals estate tax exclusion amount 7-3

4. Generation-Skipping Transfer Tax (GSTT) Skip Person Is a transferee of property who is deemed to be two or more generations younger than the transferor or the transferor’s spouse. If transferee (or the transferee’s spouse) is a lineal descendant of a grandparent of the transferor or the transferor’s spouse, generations are determined by comparing the number of generations from such grandparent to the transferor versus the transferee. If the transferee is not a lineal descendant of a grandparent of the transferor or the transferor’s spouse, transferee must be more than 37.5 years younger than transferor or transferor’s spouse. 7-4

5. Transferor’s Grandparent Aunt/UncleCousin 1st Cousin Once Removed 1st Cousin Twice Removed 1st Cousin Thrice Removed Transferor’s Parent SiblingNiece/Nephew Grand niece/nephew Adopted Great-Grand niece/nephew TRANSFERORChildGrandchild Great- Grandchild SiblingNiece/Nephew Grand niece/nephew Great-Grand niece/nephew Aunt/UncleCousin 1st Cousin Once Removed 1st Cousin Twice Removed 1st Cousin Thrice Removed Lineal Descendant Skip Parties 7-5

6. Transferor’s Great- Grandparent Great Aunt/Uncle 1st Cousin Once Removed 2nd Cousin 2nd Cousin Once Removed 2nd Cousin Twice Removed Transferor’s Grandparent Transferor’s Parents Transferor Great Aunt/Uncle 1st Cousin Once Removed 2nd Cousin 2nd Cousin Once Removed 2nd Cousin Twice Removed Non Lineal Descendant Skip Parties Persons identified in shaded boxes are not considered part of the lineal line and follow the unrelated party rules. Whether the individuals in the gray shaded boxes are skip individuals will depend on age. 7-6

7. GSTT: Exempt Transfers Direct and exclusive payment of medical expenses tuition expenses Transfers to a spouse or former spouse to a charity (most) individuals deemed to be less than two generations younger than the transferor 7-7

8. GSTT: Deceased Ancestor/Parent Skip Rule To a Lineal Heir Transferee must be a lineal descendant of a parent of the transferor or transferor’s spouse Parent of the transferee must be deceased at earliest time the transfer is subject to gift or estate tax (completion of the gift or date of death, respectively) Skip party will move into the deceased parent’s generation, which may avoid the GSTT To a Collateral Heir Transferee must be lineal descendant of transferor’s parent, but not a lineal descendant of the transferor In addition to above, transferor must have no living lineal descendants at completion of the transfer 7-8

9. GSTT: Direct Skips Determining Factor Only skip parties have a current beneficial interest in the transferred property Reported on either gift tax or estate tax return Tax, if any, will be due at same time as gift or estate tax on the transfer 7-9

10. GSTT: Indirect Skips Determining Factor At least one non-skip party has a current beneficial interest in the property after the transfer; at least one skip party must have an interest in the transferred property Will be in addition to gift or estate tax, and will be reported on same return, but tax, if any, will not be due at the same time GSTT will be due upon taxable termination or distribution 7-10

11. GSTT Taxable Termination Occurs upon the termination of the beneficial interests of all non-skip parties in property that is the subject of an indirect skip, whether by death, lapse of time, or otherwise Taxable Distribution Occurs upon the actual distribution of property that is the subject of an indirect skip to a skip party other than as a result of a taxable termination 7-11

12. Question 1 Which one of the following is a true statement about taxable distributions? a.The return used to report a taxable distribution is the federal estate tax return, Form 706. b.The trust involved in a taxable distribution is responsible for paying any GSTT due. c.Each skip person who received a taxable distribution is responsible for paying the GSTT due. d.If the skip person is incompetent, it is the responsibility of the fiduciary of the trust making a taxable distribution to pay the GSTT out of additional trust funds. 7-12

13. Question 2 A transfer where at least one non-skip party has a current interest in the transferred property after completion of the transfer is known as a.an indirect skip. b.a taxable distribution. c.a taxable termination. d.a direct skip. 7-13

14. Question 3 Which one of the following is a true statement about the GSTT? a.Only that part of a gift that will go to non-skip parties is subject to the GSTT. b.GSTT due on an indirect skip is reported when the gift is given on Form 706 or Form 709. c.The transferor reports the GSTT due on an indirect skip and the federal gift or estate tax due on the transfer at the same time. d.GSTT on indirect skips cannot be immediately determined upon completion of the transfer. 7-14

15. Question 4 Which one of the following is the valuation date used to establish the value of property transferred during the life of the transferor whenever an indirect skip is involved? a.the date of completion of the transfer b.the date a taxable distribution or termination occurs c.the date that the direct skip portion of the transfer occurs d.six months after the actual date of transfer 7-15

16. Question 5 The applicable credit amount can be applied to offset generation-skipping transfer taxes, gift taxes, or estate taxes. True False 7-16

17. Question 6 If generations are determined by age, for the GSTT to apply, the transferee must be a.32½ years younger than the transferor. b.more than 32½ years younger than the transferor. c.37½ years younger than the transferor. d.more than 37½ years younger than the transferor. 7-17

18. Question 7 Taxable terminations occur when non-skip parties no longer have an interest in the trust property, whether or not an actual distribution of trust property is made to a skip party. True False 7-18

19. ©2015, College for Financial Planning, all rights reserved. Session 7 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning