submitted by Richard P. Wilson, Esquire
A gift made by a grandparent to a grandchild is known as a generation skipping gift. If it exceeds the current exempt amount of $11 million dollars, it is subject to federal estate tax and also a generation skipping tax. Prior to 1976 there was no generation skipping tax. In estate planning the emphasis has been on federal tax planning, however, with the increase in the exempt amount per person of $11 million dollars there is little concern about the federal estate tax.
Pennsylvania has a 4-1/2% tax on any transfers in the family at death. If you have the following situation:
- Successful parents that are in a very high tax bracket;
- Fiscally responsible child and grandchild.
You can have the grandparents pass their estate directly to the children either outright or in a trust. This eliminates the need for the grandparents to pass their estate to their child as a conduit to the grandchild. Thus, you eliminate the need for an inheritance tax being paid by transfer to their child.
With the family working together, there will be a better understanding of how the financial decisions are very important for the younger generation to realize how important it is to work together.