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(Part of a series of articles on charitable giving and the Union County Foundation by David Vollrath - Executive Director) GST isn’t a substance found in Chinese food, rather GST is an acronym commonly used to refer to the "Generation Skipping Transfer Tax." Like estate tax and gift tax the GST applies to certain transfers of assets between generations. In the field of charitable giving the application comes into play when a donor makes a gift that will benefit both a charity and the donor’s grandchildren. Such gifts can occur through charitable gift annuities, and through various types of trusts. The GST applies to gift transfers between people that are separated by more than one generation, in other words a generation is "skipped." Most commonly this gift transfer is between a grandparent and a grandchild but the GST applies equally when the donor and recipient are not related. The GST tax rates are the same as the estate tax rates, meaning they decrease slightly from now until disappearing completely for one year in 2010 and then returning to a 55% level in 2011. The current schedules of rates are as follows: 2004-48%, 2005-47%, 2006-46%, 2007-2009-45%, 2010-no tax, 2011-55%. The bad news is the above listed tax; the good news is that every person can make a certain amount of generation skipping transfers during life or at death that are exempt from the GST tax. These non-taxable amounts that change over the next several years are called the "GST Exemption Amount" and are as follows: 2004-2005 -$1,500,000, 2006-2008- $2,000,000, 2009-$3,500,000, 2010-No GST Tax, 2011- $1,100,000. Let’s look at a quick and easy real life example to help us understand GST better. Let’s say that Grandma Clara gifts $100,000 to her grandson James this year, 2004. This gift is a "direct skip" generation skipping transfer since James is obviously more than one generation younger than Clara. The first $11,000 of the gift to James is tax exempt due to the annual gift exclusion we all are allowed, but the remaining $89,000 of the gift is subject to GST. Grandmother Clara must file a tax form (Form 709) reporting the generation skipping gift to James. In this example Clara will not owe any tax because she can allocate $89,000 of her GST Exemption Amount to the gift. Clearly the GST Exemption Amount will allow all but very large gifts to "skip generations" tax free but be aware that appropriate tax forms are required to be filed even in situations like that of Grandma Clara and her grandson James. It goes without saying that you should always consult your accountant and/or financial advisor in maters such as these. The Union County Foundation is equipped to help you achieve your charitable goals by providing as a free service: resource information, charitable gift annuities/life income plans, Fund formation, and assistance with planned giving and estate planning. Please call us at 937-642-9618, email us at commfounduc@imetweb.net, or stop by our Marysville office at 126 N. Main St. We are committed to helping you…. "preserve your footprint in time." |
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