Attorney & Counselor at Law
Greg J. Carlson
There are basically three types of transfer taxes imposed on the transfer of property from one person to another: (1) death taxes (estate taxes or inheritance taxes), (2) gift taxes, and (3) generation-skipping transfer taxes. Each of these taxes is discussed below.
Generally, death taxes are taxes imposed when a person dies with respect to the property (i.e., assets) owned and transferred by him or her at death. Gift taxes are taxes imposed upon the gift of property from one person to another during lifetime. For property located in the United States, death and gift taxes can be and often are imposed at two levels of government: federal and state.
The federal death tax is known as the “federal estate tax.” The gift tax imposed by the federal government is known as the “federal gift tax.” State death taxes take various forms depending on the state. Many states also impose a state gift tax.
Nevada and California no longer impose a state death tax or a state gift tax. However, some states do impose a state death or gift tax that may be applicable to property of a Nevada or California resident which is not located in Nevada or California.
There are many ways to minimize the effects of death and gift taxes upon the transfer of your property during your lifetime or upon your death. During our initial consultation, we will discuss which mechanisms will work best for you to minimize the effects of death and gift taxes upon the transfer of your property.
In addition to the federal estate and gift taxes, Congress in 1976 introduced a new form of transfer tax known as the “generation-skipping transfer tax.”
Prior to 1976 many wealthy grandparents were able to pass, at the death of their children, large amounts of property to their grandchildren without the imposition of a federal estate tax on their children’s death. This was accomplished by placing property in trust for the life of their children, and then on the death of their children, passing that property to their grandchildren. By properly structuring the trust, trust property could be used for the benefit of their children during the children’s lifetime without subjecting the property to estate taxes on the children’s death. In essence then, the property could be said to have skipped to the next generation (i.e., to the grandchildren) without having been subjected to an estate tax at the death of the grandparents’ children.
To minimize the benefits that could be obtained from this type of plan, the generation-skipping transfer tax was introduced in 1976. The purpose of this tax, as it relates to the above-type plan, was to tax the transfer of the property from the children to the grandchildren.
Great opposition was encountered over the generation-skipping transfer (“GST”) tax enacted in 1976. Therefore, in 1986 Congress repealed the 1976 GST tax and enacted a new GST tax. The objective of the new GST tax is the same as the old tax, but the methods for achieving this objective are different.
Great care should be exercised in planning large estates to minimize or avoid the impact of the GST tax. During our initial consultation, we will discuss what effect the generation-skipping transfer tax may have on your estate, and what can be done to minimize the effects of the generation-skipping transfer tax upon the transfer of your property.
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