Tax Alert

Generation-Skipping Transfer Tax Opportunity Expiring on Dec. 31, 2010

(December 23, 2010)

The recently enacted Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010) made several changes to the estate, gift, and generation-skipping transfer (GST) tax laws. The primary modifications were a retroactive increase in the lifetime exclusion of $5 million for estate and gift tax purposes and a reduction of the tax rate on the excess to 35 percent.

Less publicized were changes to the GST tax, which was also reinstated retroactively to Jan. 1, 2010, with a $5 million exemption. However, transfers made during 2010 aren’t subject to tax. The GST tax is a separate tax assessed on estate or gift transfers to grandchildren (or other “skip persons” – unrelated individuals who are at least two generations younger than the grantor) where the property is not subject to either estate or gift tax for the donor’s child.

Therefore, individuals who want to transfer assets to grandchildren or to other skip people may do so without incurring GST tax and also without using any of the grantor’s otherwise-available GST exemption, but only if the transfer is completed during 2010.

There are two primary ways to utilize this 2010 benefit and avoid any GST tax: first, outright gifts either directly to grandchildren or trusts exclusively for them, although the gift would be subject to the regular 35 percent gift tax (for example, if cumulative lifetime gifts exceed $1 million in 2010); second, transfers to grandchildren from previously existing trusts prior to Dec. 31, 2010.

For additional details, please contact Marv Hills at 574.236.7605 or, or Sally Day at 574.239.7826 or

Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.

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Marvin D. Hills
Partner, Private Client Services Leader