Is GST for me?
You’ve probably read about Generation Skipping Trusts (GST). Sound exciting? It really is. Sound complex? It is in fact, a very sophisticated but powerful planning opportunity. It’s critical to understand the true power of GST before deciding if it is right for you and your family.
To start, we can examine the potential benefit of skipping estate tax at succeeding generations.
This table shows the benefit of a $5 million principal amount compounded at 3% growth per annum with no estate tax compared to a 45% effective tax rate over five generations – the benefit is almost too good to believe!
So why not skip?
First, neither the grantor nor the spouse of the grantor can have discretionary access to the principal or income. So you’ve got to be sure you will not outlive your retained assets.
Second, trust beneficiaries will be able to enjoy the income from the trust but never have complete access to the principal, so it would be important to consider whether they have access to other capital for discretionary needs.
The upside for the future beneficiaries is that the income enjoyed from trust assets will be geometrically more from not having the principal depleted by estate tax every 30 years or so. In addition, estate planning to shelter trust assets from tax is done once, at the start of the trust. Future generations will not need to concern themselves with sheltering trust assets.
Trust and tax advisors at Apple Growth Partners can work with you to project the benefit of a Generation Skipping Trust on your family and personal financial plan. With the power of the $5 million GST exemption set to expire on December 31, 2012, this tool should be thoroughly explored and understood while it is still available.