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Save Even More Farm with “Upstream” Generation Skipping Planning

February 1, 2010

The mission of our law firm is to help our clients with effective planning that achieves results and is easy to put in place.  Even the most effective plan means nothing if it is not implemented.  Our process of plan completion, free legal news updates, and free phone calls for clients and free educational seminars for clients sets the standard that clients should expect in their planning experience.  

Quality estate planning is based on client goals.  In my 28 years of planning I find that clients have two overriding goals: to take care of their spouse and to keep all of their farming or ranching operation in the hands of their loved ones.

While taking care of the spouse in a plan is vitally important, it is easily done even in the most basic of plans.  Let’s assume that you’ve done that, now let’s save some more estate tax.

Last month I wrote the following:  One of the most effective strategies available to farm families for reaching their planning goals is Generation Skipping Tax Planning.  This effective tool has been ignored for two major reasons: a.). it was misunderstood and b). it was considered as a tool for only the super rich.

I then went on to explain the misconceptions as well as the benefits of adding Generation Skipping Tax Planning to your estate plan.  The bottom line is that with GST Planning, all or part of the estate tax skips a generation (or two), but your property does not. It can still pass to a trust your children can enjoy and control.  The big loser is the IRS. There are some clients that are uniquely situated for even greater estate tax savings by using GST Planning in an “upstream” manner. 

If you have or expect to have a taxable estate at your death, which is $1Million starting in 2011, and you expect to receive an inheritance from a parent, you can have your parent add GST Planning to their plan so that part or all of your inheritance will not be subject to estate tax in your estate.  This will not hurt your parent, but can be a great savings for your descendants. If you already have a taxable estate, you will not want your inheritance to add to the estate tax burden.  Your operation belongs in the hands of your family.

Many times we have seen traditional planning tools waste the estate tax exemption on the death of a spouse.  This is a tragic waste and can cost hundreds of thousands of dollars in wasted estate tax.  However it is even more common for folks to forget to use their Generation Skipping Tax Exemption and in so doing are causing their descendants to pay unnecessary estate taxes.  If you’re in this situation, talk to your parents while there is still time to update their estate plans.

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