Montgomery County Estate Lawyer

Just as the estate freeze concept argues in favor of using a client’s Unified Credit via lifetime gifts rather than testamentary transfers, the GST tax exemption is better utilized via lifetime transfers.  For example, let’s assume that a grantor wishes to give 25% of his $4 million estate to his grandchildren.  The grantor makes a gift of $1 million in trust today, and allocates $1 million of the grantor’s GST tax exemption to the trust.  Thus, the inclusion ratio is zero.  The trust will pay income to the grantor’s children for life, with remainder over to the grandchildren upon the death of the grantor.  The $1 million gift to the grantor then grows in value over time, so that upon the death of the grantor 20 years later, the trust is worth $5 million.  The distribution of the $5 million to the grandchildren is a Taxable Termination.  However, because the inclusion ratio is zero as set up by your Montgomery County estate lawyer, there is no amount to be included in calculating the GST tax on the transfer.  

Compare the foregoing with what would have happened had the grantor waited to make the 25% gift upon via testamentary transfer on his death.  Assuming the same rate of appreciation, the grantor’s total estate would approximately be worth $20 million, so that 25% of the estate would be $5 million.  The grantor devises that 25% of his estate to his grandchildren.  By waiting, there is $4 million included in the grantor’s taxable estate that, under the previous example, would have passed to the grandchildren without any estate tax.  Further, there would also be a GST tax to be paid if the $5 million devise exceeded the then current GST tax exemption.  Thus, the classic freez model argues in favor of utilizing the GST tax exemption during the lifetime.