The Year to Give to Grandchildren

Although the estate tax lapse has stolen the spotlight this year, there is another lapse that fewer people are aware of. The generation-skipping transfer tax (GSTT) also disappeared in 2010, offering wealthy individuals a tax-free way to pass on money to their grandchildren. The grandparent will still have to pay the gift tax, but the rate for gifts is only 35% this year. Next year, if Congress doesn’t act, the gift tax will rise to 55%, and the GSTT will be applied on top of that.

J.P. Morgan recently analyzed the numbers and found that the benefit of a $1 million gift made in 2010 is $305,565 more than the same gift in 2011. A J.P. Morgan adviser “said that while there is a lot of interest in making gifts to grandchildren this year, many people are waiting until closer to the end of the year to make sure Congress doesn’t enact a retroactive estate and generation-skipping tax at the last minute. The chance of this grows slimmer each day. Nonetheless, some people are loathe to write a big gift tax check tax until they are more certain.”

Tax Break Promotes Big Gifts to Grandchildren, Private Wealth, Sept. 23, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.