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Must Act Now for GST Tax Savings Opportunity

The new tax bill has created a generation-skipping transfer (GST) tax savings opportunity, but you must act quickly because it expires at midnight on December 31, 2010. The GST tax rate for 2010 is 0%. That’s both for outright gifts and money put in a trust for the sole benefit of grandchildren (or other skip persons). Such transfers will incur only gift tax at 35% (to the extent that the donor’s $1 million gift tax exemption has been used), but will not incur any GST tax. On the subsequently filed gift tax return, the donor should elect to “opt out” of the automatic allocation of the $5 million GST tax exemption.

A provision in the new law, referred to as the “step-down” rule, will prevent the GST tax from being imposed on distributions from a trust for which the GST tax was already imposed.

Advisors may want to let clients know about this fleeting opportunity.

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