GST Tax or generation skipping transfers are a fancy way of trying to reduce estate taxes when you die. Because Minnesota is considered a decoupled state and taxes are only going up and up, it does not take very many assets and life insurance benefits to make this a significant issue. As a result, GST is a proposition that a lot of families are considering when planning for asset transfers.
Generation skipping taxes is the process of our government, taxing property that is left for our grandchildren or great-grandchildren. Unfortunately, this type of trust also applies to property left to unrelated persons who are younger than 37.5 years of age. Kind of an interesting addition to the rule, but important nonetheless.
Most families agree that any way to reduce an estate tax bill should be considered. For what it is worth, the intent behind the generation skipping transfer tax was to prevent these windows of opportunity. Luckily, there are other options to consider.
From a practical perspective, the GST tax is imposed on all property left, whether through a trust or otherwise. Historically, these types of estate taxes aligned with the federal exemption amounts. So, in the year 2022, there would be a 40% tax on all amounts above the federal exemption. Again, this doesn’t take into consideration Minnesota’s estate tax.
Therefore, finding ways to reduce or alleviate estate taxes is the name of the game.
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Estate Attorney Jasper Berg