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How generation sharing plays into your estate plan

Through careful planning, generation sharing can work to the benefit of everyone in your family. In the past, only the extremely rich could participate in this type of estate planning in Indiana, but all that has changed. It’s sometimes called a generation-skipping estate plan, although that’s not technically accurate and may be misleading.

What does generation-sharing do?

The desired tax benefit of this type of estate planning is to give your kids access to their assets and allow them to have control over their shares. Estate taxes are skipped for at least one generation, which is why generation-sharing is a more accurate name for this process.

What makes some people leery about generation is the misconception that you’re required to transfer all assets straight to your grandchildren, leaving your kids completely out of the mix. Fortunately, that’s not quite how it works.

How are these types of transfers taxed?

Passing the assets directly or even indirectly to your grandchildren is a way of working around this estate tax for your kids, but this may also lead to a generation-skipping transfer tax. This GST Tax is added on top of the estate tax at a flat rate of 45%, also applying to lifetime gifts passed to your grandkids.

Most of the time, a transfer tax is imposed by the IRC (Internal Revenue Code) for every generation that the estate passes. But with the GST exemption provided to all individuals by the IRC, you can avoid this hefty added tax on the first $10,000,000 passed on to your grandchildren.

Passing your assets from your child to your grandchild will result in an estate tax for both the child and parents. When used strategically, generation-sharing may be helpful for both individuals and families when determining the best way to transfer their assets.