Blog & Resources

In my previous article I introduced you to the basic understanding of Generation Skipping Tax; its origins, purpose and theory. This Article will take you a little deeper into the actual tax terms and how it is applied. My hope is that after reading these articles my clients will have a working knowledge of the Generation Skipping Tax and, with as much enthusiasm a non-tax geek can have, embrace planning techniques that help reduce or even avoid the Generation Skipping Tax.

One of the first calls I received after reporting for duty as a United States Navy JAG in Philadelphia, Pennsylvania, was from a family in Burlington County, New Jersey. The week before the call the family had buried their Grandfather. The Grandfather had been a WWII Navy vet. After the funeral they looked at his Will and found that his estate plan included a burial at sea. They wanted to know what to do.

Can you write a valid Will on the back of an envelope in Philadelphia? The answer is yes….. but you are asking for trouble. Philadelphia Will Drafting Attorneys agree, Self-Proved Wills are preferable to Holographic Wills.

A Will is a statement declaring a person’s wishes regarding the disposal of the person’s property when the person dies. It affects titles to land, whom receives bank accounts and stocks and whom will serve in guardianships for minor children. Any discrepancy, error or omission can lead to years of litigation and bad feelings between the surviving family members. A Will is not something to take lightly.

The new tax rules for 2011 and 2012 increase the applicable exclusion amount that can be used to give away $5 million free of gift tax. This provides a unique opportunity to shift wealth out of your estate to your children or other heirs and a vehicle to reduce estate tax. By using an irrevocable trust the wealth can be protected from your children’s divorces, creditors and from estate and inheritance taxes when those same assets later pass to or in further trust for your grandchildren when your children die.

Inheritances are often left directly to a person, which is called an “outright” distribution. At other times clients choose to have an inheritance held in Trust. Trusts at their most basic are arrangements where one person, the Grantor, transfers an asset to a second person, the Trustee, to hold for a third person, the Beneficiary. In some Trusts one person wears more than one of these hats, for example when a parent forms a Trust for a child (Beneficiary) and names that child as the Trustee. Trusts can be Irrevocable or Revocable (sometimes called “Living Trusts”), complex or simple and serve a multitude of purposes, but typically if a client wants to give money in trust for a Beneficiary the client will create the Trust in the client’s Will.
What if a client wishes to make a gift in his or her Will into a trust formed by someone else?

This question was addressed in an August 2006 Decree from the Orphans’ Court Division of the Court of Common Please of Chester County in the Estate of Elizabeth Harris, deceased. Thinking this case may have interest to you, I have written the following short article.