Jeffrey M. Verdon Law Group, LLP
Ph: 949-988-0939

The New Estate Tax Law: A Tax Savings Opportunity You Should Know About and Must Complete Before December 31, 2010

Our beloved Congress and President has finally passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This Client Alert is to alert you to an incredible planning opportunity, albeit, a very short time frame.

A GST Tax Rate of 0%: Any generation skipping transfer (GST) (a transfer to a grandchild or more remote descendant or another skip person [i.e., an unrelated individual more than 37 1⁄2 years younger than the donor] to such person) before 2011 will incur only a gift tax at 35% (above the donor's available $1M gift tax exemption) and will not incur any GST tax.

If the grandchild is a minor or if asset protection is an overriding consideration (which today, it should be), careful planning considerations must be given. It is now possible to transfer significant sums in trust for grandchildren, pay only a 35% tax on such transfers and defer any GST tax or estate tax until the grandchild's death. If the grandchild is very young, the deferral can extend upwards of 80 years or longer!

The trust is created for the benefit of descendants (and other unrelated skip persons) the same generation who are at least two generations below the donor/settlor. There are technical rules that apply to drafting the trust in order to qualify, but the wealth transfer opportunities are as good as we have ever had.

Next, you fund the trust. The donor is transferring property to a trust that is considered to be a "skip person" pursuant to IRC 2612(c), which is subject to the GST Tax. However, since the new Act provides the GST tax rate for 2010 is 0%, there are no GST taxes. For example: If the donor transferred $20M to a new trust for the benefit of his grandchildren, the transfer would owe $7M in gift tax (35% of $20M) whereas next year, the donor would have to pay an additional GST tax at 35% tax rate. The new Act also provides for the "step-down" rule and prevents a GST tax from being imposed on transfers for which the GST tax was already imposed.

There are other technical rules that apply, but the foregoing describes the tremendous opportunity for serious wealth transfer before the year end. We will be open through the end of the year to assist our clients and friends in taking advantage of these opportunities.

We will be circulating a more comprehensive Client Alert summarizing the new laws with discussions that are not so time sensitive.

We hope this helps...

Jeffrey M. Verdon, Esq

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