Provided by the Law Offices of RICHARD MAYBERRY
MAYBERRY LAW FIRM
2010 Corporate Ridge
McLean, VA 22102
(703)714-1554

Committed to providing the highest quality estate planning legal services for individuals, families and businesses

     Substantial numbers of grandparents are "skipping" their own children in favor of their grandchildren when planning for the transfer of the family wealth. This is being done for a variety of financial and non-financial reasons, such as:
• The children have significant personal wealth of their own;
• The children have marital, legal and financial problems, or are otherwise irresponsible;
• The children cannot or will not provide for the future of the grandchildren; and/or
•The grandparents wish to perpetuate their wealth for future generations.

     If this sounds like your situation and your estate is worth more than $1 million (or could grow to exceed it), you need to know about the "Generation Skipping Transfer Tax (GSTT)." Failure to understand it can be extremely expensive.

     The GSTT is intended to ensure that wealth is subjected to taxes as it moves from one generation to the next generation, whether transferred by lifetime giving or at death. (Note: The laws governing GSTT are extremely complex and require professional guidance to safely navigate them.) The GSTT laws provide each taxpayer with a $1 million exemption to protect transfers skipping your children in favor of your grandchildren. That is the good news.

     Now the bad news: you must specifically plan for this exemption to use it and failure to do so can be very expensive. Why? Because transfers exceeding this exemption are taxed at a flat rate of 55% in addition to any estate taxes which may be due.

Alan and Betty's Story
     Alan and Betty have two children. One child has his own business and the other is a surgeon. Both are very successful, happily married and are parents themselves. Alan and Betty's own estate is currently valued at $2 million. They have no estate plan, other than joint ownership of assets and simple, sweetheart wills prepared when their children were minors. In short, if Alan and Betty were to die in the near future, their combined estate would pass through probate and then be subject to federal estate taxes IRS in excess of $500,000.

     But the taxes don't stop there. Once Alan and Betty's estate assets were transferred to the estates of their respective children, those same estate assets would eventually be subject to federal estate taxes again at their children's deaths.

An A-B-C Solution
     Alan and Betty like flexibility in everything from planning their vacations to their investment portfolio. They want to approach their estate plan in the same manner. While the various custom options available for GSTT planning are too numerous to address here, Alan and Betty may be appropriate candidates for an "A-B-C Trust."

     If either Alan or Betty were to predecease, their A-B-C Trust would give the survivor maximum flexibility. For example, by use of "disclaimers," the surviving spouse could :
• optimize the unlimited marital deduction via Trust A;
• ensure full use of the "exclusion amount" (currently $650,000 per person, increasing to $1 million in 2006) via Trust B; and
• maximize use of the GSTT exemption via Trust C.

     In contrast to their current planning, this A-B-C approach could immediately cut Alan and Betty's current estate tax exposure in half. But even more important, skipping the estate taxes in their children's estates through GSTT planning could shield even more from future federal estate taxes. In the end, that means more wealth sent to their grandchildren and less to Washington.

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Call Richard at (703) 714-1554
Email: mayberry@mayberrylawfirm.com