When a person dies, they often make legal arrangements to pass their assets and property to their loved ones. Estate taxes that will need to be paid depends on how much the estate is worth. In some cases, the amount of tax owed to the government can be as much as 40 percent or more of the estate.
There are steps a person can take to avoid their estate being walloped by estate taxes. One of the most effective ways to do this is by reducing just how much the estate is worth. This can be done by creating a generation skipping trust. An estate planning attorney, like an estate lawyer in Sacramento, CA, can evaluate your situation and determine if this is one of the many estate planning tools available that will help protect your family when you are no longer here. Call our office today to set up a consultation to find out how we can help. In the meantime, the following is a brief overview of generation skipping trusts.
How a Generation Skipping Trust Works
One way people avoid paying estate taxes is by making yearly gifts to their heirs. These amount limits are set by the IRS and are usually increased by $1,000 every year or two. As of the date of this publication, the cap on the amount of yearly gifts a person can give to an heir is $15,000. This can be done each year, to as many heirs as the person wants, and no tax is owed. The IRS does set a lifetime gifting amount cap and once it is reached, the estate tax laws will apply.
Many people do use the yearly giving method, giving gifts to children and grandchildren, however, if the reach the lifetime cap amount, this is no longer a viable way to avoid estate taxes. Instead, setting up a generation skipping trust – which skips the individual’s children and sets the trusts up for the grandchildren – may be the better way to go.
Am I Eligible?
A person can set up generation skipping up trusts for their grandchildren and also for anyone not related to them, as long as that beneficiary is at least 37 years younger than they are. The beneficiary cannot be the person’s spouse or ex-spouse. Generation skipping trusts do not leave out the person’s children entirely, however, since they can use the profits that are produced by the assets that have been placed in the trust.
Contact an Estate Planning Attorney
Although your estate may not be the size that would benefit or even need a generation skipping trust, there are other types of trusts that may benefit you for other factors that you need to address to protect your assets and property, including special needs trust, pet trusts, and charitable giving trusts. Call an estate planning attorney today to find out more.
Contact Yee Law Group to learn more about estate planning.