Question

In prior (pre-2011) years, Lyle had made taxable gifts (i.e., any annual exclusion(s) have been subtracted) totaling $2,000,000, all of which were made to grandchildren. Accordingly, $2,000,000 of Lyle's GST exemption had been allocated to these gifts. During the current year (2017), another $4,060,000 of taxable gifts (i.e., annual exclusion(s) have already been subtracted) were made to Lyle's grandchildren. Lyle did not allocate any of his remaining GST exemption to the current year gifts, because, by 2016 (the year before), all of his children had died. Determine the GST due, if any, on Lyle's gifts in the current year.

Answer 1

According to the GST, transfers to “skip persons,” which shall include grandchildren or other family member who is more than a generation below you. But when the child dies before his children .i.e. your son dies before your grandchildren,then your grandchilfren are no longer considered to be called skip persons.

Accordingly,Lyle had transfered the GST of $2 million to Lyle's grandchildren and the same was allocated hence there is no liability.

However,in the current year, another gift transfer was made to the grandchildren by Lyle but here her kids had deceased. Hence the grandchildren fail to qualify as skip person.

The maximum lifetime guard/exemption for Lyle shall be of $5.49 Million. Hence Lyle will be liable for tax only on balance amount of 0.57 million( 2+4.06-5.49).

The tax instructions for GST by IRS is as follows:

Taxable Income is between $500,000-$750,000, then tax shall be $155,800 + 37% of income above $500,000.

= $155,800+ 37% * $70,000 = $155,800+$25,900= $181,700.