Estate Planning GSTT CALCULATION- DIRECT SKIP AT DEATH Nelson Goddard died and l

Question

Estate Planning

GSTT CALCULATION-

DIRECT SKIP AT DEATH

Nelson Goddard died and left his grandson $50,000 cash in his will. Under the terms of Nelson's will, this bequest is not reduced by any amounts. Assume that Nelson used all but $10,000 of his $5.43 million exemption during his lifetime and that his estate will allocate that amount against this bequest.

a. Calculate the generation-skipping transfer tax payable. How much would his grandson receive?

b. What would your answer be if the grandson's bequest had to bear the burden of the GST tax on it? How much would his grandson actually receive?

Explanation / Answer

Answer:

a.    Consider GSTT rate as 45%

Tax credit = $10000

Therefore first $10000 of $50000 will not levy any GSTT.

So the GSTT on $40000 = 45% x $40000 = $18000

His grandson will receive $50000 - $18000 = $32000

b.    Consider GSTT rate as 45%

Tax credit = $0

So the GSTT on $40000 = 45% x $50000 = $22500

His grandson will receive $50000 - $22500 = $27500

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