Client Alert

New tax law lowers required taxes on generation-skipping trusts

Effective January 1, 2018, new tax laws lowered the requirement to pay taxes on certain inheritance trusts in California. For those hoping to pass down significant inheritance, your beneficiaries now may avoid paying taxes on your generous gift because of an increased threshold.

Generation-skipping trusts are included in the tax exemption change. In 2010, generation-skipping trusts exceeding $5 million were subject to extreme taxes. The government could tax your gift up to 40% when your beneficiaries have access to it. Now, the threshold increased to $10 million, or $11.2 million precisely with inflation.

Why generation-skipping trusts?

Generation-skipping trusts give you the opportunity to secure your wealth after you pass. Although you may not want to think about the possibility of an untimely death, you may want to ensure that your beneficiaries have access to your available wealth – sans taxes. Generation-skipping trusts hand assets down to your grandchildren.

Aside from the tax benefit of gifting your wealth to your grandchildren, developing a generation-skipping trust in California may provide you with:

Peace of mind: Your assets are secure and not subject to taxation, and you do not need to worry about what will happen to your estate if you pass away. You have control over how much money or assets like stocks or property to place into the trust.

Lowering taxes for your beneficiaries: Usually, if transferees have access to significant wealth passed down to them, the government views them in a higher tax bracket. Laws may subject them to serious taxation. With a trust, their wealth received from you is separate from their own estate.

Gifting money to your grandchildren: Many adults enjoy the idea that if they choose to gift money to their beneficiaries, they provide for their grandchildren.

Due to the new taxation laws, you may want to set aside funds in a generation-skipping trust if your wealth is less than $11.2 million. Understanding its security may help you determine that generation-skipping trusts prove right for your situation. In developing a trust with significant assets, you may want to hire an experienced estate planning attorney to ensure that your trust is valid and secure with California law.

Posted in Client Alert, Taxes / Laws.