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ESQ21A

Questions about "Generation Skipping Tax Trust"

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Greetings:

 

I am one of four named beneficiaries of what is, I think, at least colloquially known as a "Generation Skipping Tax" trust or sometimes "Generation Skipping Transfer Tax" trust (I'll call the trust a "GSTT"). My grandmother, who died well over a decade ago, established the trust in the late 1990s. The purpose of the GSTT is to provide income to the settlor's children (in this case, my mom and her brother) during their lifetimes then the corpus would pass to my cousins and me in a fairly tax-advantaged way.

 

I actually started my legal career as a summer associate working on Trusts & Estates matters, but have since had little to do with this interesting area of the law, and really know very little about GSTTs. My questions include:

 

1) Do I, as a beneficiary, have the _right_ to see the trust instrument? It would certainly be useful to have a glimpse in order to be best situated when the prior generation, who are now both in their 80s, is extinguished. It is not altogether clear to me why the document hasn't been provided to me in the three decades since the GSTT was settled, so I am not sure what the reaction would be if I simply asked.

 

2) Do I, as a beneficiary, have any _right_ to see how the corpus of the trust has been managed? By this I mean, can I demand (if you will) as of right to see statements detailing the assets of the trust? I mean, does such a right exist in the law, as I do not know what the document says yet.

 

Finally, how are these things generally structured, in your experience? Is it typical for them to provide that the grantor's children will determine the distribution of assets on their (the grantor's children) deaths? I am not sure how much of GSTT structuring is bespoke and how much is established either by the strictures of the IRC or precedent. Predictably, I would simply assume if my mom predeceases my uncle, he would, without hesitation, provide for the disposition of the trust's assets to his children, not me. Surely GSTTs would not typically come with such an obvious flaw. Is it more common for the grantor to (or does the grantor always) establish the distribution of the GSTT's assets upon the demise of the children?
 

I note that a common question on this forum runs along the lines of "if you don't have the trust instrument, how do you know you are a beneficiary?" I was sent a letter in, as I say, the 1990s from my grandmother's attorney stating that an irrevocable GSTT, of which I was a beneficiary, had been created and funded in $XX amount by my grandmother, and the assets had been entrusted to XYZ Trust Company. My parents, too, have made the odd mention of it over the years.

 

Thanks.

 

ESQ

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3 hours ago, ESQ21A said:

1) Do I, as a beneficiary, have the _right_ to see the trust instrument? It would certainly be useful to have a glimpse in order to be best situated when the prior generation, who are now both in their 80s, is extinguished. It is not altogether clear to me why the document hasn't been provided to me in the three decades since the GSTT was settled, so I am not sure what the reaction would be if I simply asked.

 

2) Do I, as a beneficiary, have any _right_ to see how the corpus of the trust has been managed? By this I mean, can I demand (if you will) as of right to see statements detailing the assets of the trust? I mean, does such a right exist in the law, as I do not know what the document says yet.

 

 

The answers to both questions depends on the trust law of the state that governs this trust and the terms of the trust itself. Federal tax law only determines the federal tax consequences of the arrangement; it does not provide rules regarding rights of a beneficiary to see the trust document or to obtain an accounting of the trust from the trustee.

 

A generation skipping transfer (GST) tax is imposed on transfers made by a person to the second generation below him (e.g. grandkids) when members of the first generation (e.g. kids) are still alive. The idea is to ensure that assets that would normally get tax taxed under the estate or gift tax twice — once on the first transfer from the grandparent to his child and then again on the second transfer from the child to the grandchild — is still effectively tax twice if the assets are given directly from grandparent to grandchild. (Gifts to nonrelatives are also affected; if the person giving the gift is at least 37½ years older than the one receiving the gift the GST tax would apply). One of the big targets of this tax were trust arrangements that would benefit the child during his/her lifetime by giving certain distributions of income or corpus to him but to which the estate tax would not apply when he died because he lacked sufficient powers in the trust, and then the rest of the trust would go to the grandkids. That kind of trust would only have one round of estate tax at the grandparent's death. The GST tax plugged that hole in the estate tax.

 

But the GST tax has an exemption that allows a certain amount of property to be passed to skip persons (the grandkids) without triggering the tax. This provides certain opportunities for tax planning to maximize the benefit of the exemption. Trusts are often used in this sort of planning. There are, however, different ways it might be done depending on the desires of the client and the details of his/her assets. Because of that, you'll need to see the actual trust document to answer your questions about who would get what distributions and who makes those decisions.

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Hi @ESQ21A

 

Welcome to the Answers community and thanks for posting your question! Looks like you already got some great legal direction from Tax_Counsel. The FindLaw Legal Professionals law library also has some helpful materials about the Generation-Skipping Transfer Tax that you may want to review.

 

Let us know if you have additional questions for the community!

The FindLaw.com Team

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