Due to provisions that are contained in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the estate rate was reduced from the 55% that had been scheduled down to 35% in 2011 and 2012.
At first glance this sounds great, but when you inherit your family legacy and the government takes 35% of it before it reaches your hands, it sounds a lot less appealing.
For example, a $50 million estate would wind up being $34.
25 million after the estate tax was levied.
How long and hard did your ancestors have to work to accumulate that $15.
75 million that was taken by the government in the blink of an eye? And guess what? The pain doesn't stop there.
If your children passed along that $34.
25 million to their children under the present 35% estate tax rate, it would shrink to about $24 million.
So over two generations the government has more of your money that your family does, and this can just go on and on until the only thing left is the $5 million that was originally exempt.
This is why so many people feel as though the estate tax should be permanently repealed.
But until and unless that happens, you have to take action when you are planning your estate, and one thing that you can do to combat this asset erosion would be to create a generation skipping trust.
With these instruments you name your grandchildren as the beneficiaries instead of your children.
Your children can benefit from the trust and receive cash distributions, but they don't own the assets.
For this reason no claimants or former spouses can target the trust's resources, and no taxes are imposed.
When your children pass away, your grandchildren assume ownership of the assets in the trust and the estate tax must only be paid once though the funds passed though the hands of two generations.