What You Need to Know
- Today, in many states, the arrangements can shield trusts from estate and gift taxes in perpetuity.
- The proposal would limit the duration of a GST tax exemption.
- Another budget proposal provision would update the rules for estate executors.
The Biden administration wants to keep wealthy families from using the generation-skipping transfer tax exemption to shield assets from estate and gift taxes forever.
The administration has proposed a GST tax exemption duration limit tied to the lifespan of the giver’s grandchildren.
The administration also has proposed estate administration rule changes that may be less dramatic but affect more people. One would replace the current, narrow definition of estate executor with a broader definition.
The U.S. Treasury Department describes the proposals in the general explanations report, or “Greenbook,” for Biden’s budget proposal for federal fiscal year 2023.
The department put the estate administration and GST proposals in a section with the heading “Modify Estate and Gift Taxation.
The GST Exemption
Federal law imposes a generation-skipping transfer tax on givers of gifts and bequests to recipients who are two or more generations younger than the givers. The givers gets a lifetime GST tax exemption.
The 2022 exemption is $12.06 million.
The giver can allocate the exemption amount to a grandchild or other “skip person,” according to the Treasury department.
Because of the way federal trust rules, state trust rules and the GST tax exemption rules work together, residents of many states can now use the GST tax exemption and trusts to shield assets from estate and gift taxes permanently, officials report.
Under the proposal described in the Greenbook, the GST exemption would apply only to “beneficiaries no more than two generations below the transferor, and to younger generation beneficiaries who were alive at the creation of the trust. ”
Estate Tax Administration
The current federal definition of “executor” applies only for estate tax purposes, and the executor has no ability to help with other matters related to an individual’s death, Treasury officials report.