In February, Trusts & Estates/Wealthmanagement.com launched a new monthly newsletter that caters to financial advisors. The goal of the undertaking? Demystify the world of estate planning and encourage collaboration between attorneys and the more investment-focused professionals.
This month, an article from John O. McManus, founding principal of McManus & Associates and a top AV-rated trusts and estates attorney, was featured in the newsletter and published on wealthmanagement.com here. John’s article, “The New Frontier of Estate Planning,” puts the Generation-Skipping Transfer tax (GST) on the radars of financial advisors, pointing out that estate planning strategies have evolved along with the tax climate and political landscape.
As described by John:
“GST is a second-layer tax typically imposed on asset transfers to grandchildren or any other generation beyond one’s children. Unlike the estate and gift tax exemption amounts, the GST exemption is non-portable, even between married couples, so it’s essential to plan for total deployment of the amount through a last will and testament, revocable living trust or with lifetime gifts.”
With simple math, the piece shows how to determine the “applicable rate” of GST—multiply the “inclusion ratio” by the maximum federal estate tax rate—and then goes on to detail the history of GST law. Encouraging that financial advisors can easily help clients maximize their GST exemption, John explains:
“Irrevocable life insurance trusts (ILIT) and annual exclusion gift trusts, both estate planning staples, are examples of common strategies that impact the availability of GST exemption due to the automatic allocation rules. Filing an annual gift tax return and not electing to deploy GST exemption on the transfer for small gifts preserves the exemption for larger lifetime transfers.
“Our advice for accountants filing gift tax returns? Read a copy of the trust agreement and have a discussion with the client’s estate planning firm to understand the intended deployment of the GST exemption. Maintain your clients’ trust by avoiding problems in the first place and preventing the need to fix those problems at a greater cost down the road.”
The piece closes by urging financial advisors and estate planning attorneys to work together in order to best navigate the GST tax when approached about transferring wealth to grandchildren. For an in-depth look at GST, read John’s whole article here. And to find out how McManus & Associates can put the GST exemption to work for you, give us a call at 908-898-0100.