An important goal for many Illinoisans as they develop their estate plan is preserving as much of their wealth as possible for future generations. That means minimizing or eliminating estate taxes.
Federal estate taxes are levied on the amount of an estate that exceeds the threshold amount of $12.06 million. However, Illinois’ state estate tax kicks in for the amount of an estate over $4 million.
Who can you name as the beneficiary of a GST?
One way that many people choose to avoid having their assets go to estate taxes is a generation-skipping trust (GST). The beneficiaries of a GST can be:
- Anyone separated by the trust grantor (the person who established the trust) by a minimum of two generations (such as grandchildren, grandnieces and grandnephews)
- Anyone who is at least 37 ½ years younger than the trust grantor (who is not a current or former spouse)
If a grantor designates a grandchild as the beneficiary of the GST, their own child (the grandchild’s parent) can still benefit from any income generated by the trust proceeds. It has to be structured to allow for that, however.
Do you need to worry about the GST transfer tax?
Yes, there is a tax on assets transferred to a GST. A generation-skipping transfer tax (GSTT) was added to the tax code in the 1980s. However, it applies only when the amount of the GST is above $5 million. That amount was set by law in 2012, so the threshold doesn’t increase annually or periodically as others do.
A GST is just one way to protect your assets from estate and other taxes. It’s not right for everyone. With experienced legal guidance, you can determine which estate planning tools can help you best protect and provide for your family after you’re gone.