GST: Generation Skipping Transfer Tax

Staying abreast of current tax changes is critical to getting the most “bang for your buck” when it comes to estate planning. 2018 had significant, albeit likely temporary, increases in the federal estate, gift, and generation-skipping transfer tax exemptions. For example, individuals who previously used their previous lifetime gift tax exemption amounts can now effectively double the amount of assets and money that can be transferred without incurring any federal gift tax consequences. As such, it is a good idea to reevaluate your current estate planning to determine if your estate planning goals are being met and if there are now unexploited taxation opportunities with the recent changes in law. For example, many people, in light of the increased lifetime gift tax exemption amount and generation-skipping transfer tax exemption amount, are making gifts to children, grandchildren, or close family friends with either outright distributions or through new or existing trusts. The first step, however, in manipulating recent changes in federal law to your personal benefit is understanding the underlying tax structures. One significant theory of taxation is the generation-skipping transfer tax. This tax, however, is only one of many which may affect your estate, as such, contact an experienced Ohio estate planning attorney to make sure the most goes to your friends and family.     
 

  • What is the GST Tax? 

First question is the most common, what is the generation-skipping transfer tax? The generation-skipping transfer tax or, “GST”, is a flat, 40% tax on transfers to specific persons, sometimes called “skip persons,” such as grandchildren, other family members more than one generation from you, nonfamily members more than 37.5 years younger than you, and also certain trusts. Whether or not transfers to a particular trust are subject to GST taxation is primarily focused on who are named as beneficiaries and their generational status to the grantor(s). Avoiding GST taxation and preserving the most amount of your money and assets is one of the primary goals for you and your estate planner.     

  • How is it triggered? 

GST taxation can be triggered either intentionally or unintentionally via transfers of assets or money. Intentional transfers, such as purposefully leaving bequests, trust distributions, or inheritance to “skip persons.” Unintentional transfers, such as children predeceasing grandchildren and an estate plan failing to take this possibility into account when calculating future distribution structures.   

When a particular transfer is deemed to trigger the GST tax, the next step is to calculate whether it falls into any exemption categories and if there is any money left in any of those categories to shield the transfer from GST taxation. The two major exemptions are the annual gift tax exclusion, currently $14,000 per recipient; $28,000 for married couples, and the Unified Tax Credit, approximately $11.8 million lifetime exemption and approximately double that amount for married couples.   

  • How do I use exemptions to avoid GST?  

Utilizing tax exemptions to avoid GST essentially boils down to properly documenting and earmarking transfers that may trigger GST taxation and filing any appropriate paperwork with the IRS. Again, regardless of whether these transfers are made during the grantor’s lifetime or at their death, as long as transfers either skip a generation or are made in trust for multiple generations, GST taxation must be considered and addressed.  

Estate planners take the transfers you want to make, then plot different tactics for transfer dependent on your overall goals and realities for your particular estate. Many, few, or no options may be available to avoid GST in your circumstances. Sometimes certain gifts are not applied toward the exemption, such as “annual exclusion” gifts and direct payments for medical or education purposes, thus these can be made completely tax-free. Other times decisions have to be made to temporary hold off on a transfer or to shift a transfer to another spouse to use their tax exemption amounts. Furthermore, the estate planner must decide whether to file a gift tax return or plan the transfer so it appears as an incomplete gift. Just because a transfer looks like it falls within the bounds of a taxation exemption doesn’t mean the transfer magically is ignored by the IRS, your estate planning still has a lot of paperwork and legal leg work to do.    

  • How to Avoid GST with trusts 

Trusts provide a multitude of estate planning benefits, one of the most popular uses for them is minimizing or avoiding estate taxation, in this context, GST taxation. A-B trusts, bypass trusts, and dynasty trusts are all examples of trust vehicles that can mitigate or completely avoid any concerns you might have with generation-skipping transfers. Trust use here primarily concerns manipulating trust funding and available exemption amounts in conjunction with the practical needs of you and your family. Each trust type, however, has their own benefits and disadvantages. As such, it is important to talk with an Ohio estate planning attorney to find out the pro’s and con’s of using a trust in your circumstances.  

Regardless of whether a trust is right for your estate planning goals, now is the time to review your current estate planning documents to ensure they remain in accordance with your intent and the recent changes in law. Often many estates are planned around and use trusts that are funded according to formulas tied to now changed federal estate exemption amounts. As such, with the recent increased estate tax exemptions, such trusts may be funded with significantly larger amounts than you anticipated when you originally met with your estate planner. Further, a comprehensive review of your trust and estate planning documents will allow you to assess their effectiveness in light of the changes to the law, changes in your personal life, and changes to your estate planning goals.    

Disclaimer: 

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.  

How to Lower Your Property Tax – Fighting Overvalued County Appraisals

 

What: Property Value Appraisal

Ohio operates on a system in which county auditors reappraise every piece of land and every building located in their county every six years. These base appraised values are then multiplied by local tax rates. This value is what is shown on local county auditor’s website and is often used as a base line when determining potential real estate taxes.

This reappraisal occurs in different counties at different times. Naturally, it is just too much for every local government to reappraise everything all at once. So, Ohio uses staggered reappraisal with different groups of counties undergoing reappraisal or updating during different tax years.

The following counties recently have either finished reappraisals or recently undergone updates:

Update Counties

 

Allen Coshocton
Guernsey Sandusky
Vinton  

 

Reappraisal Counties

 

Belmont Brown Crawford Cuyahoga Erie
Fayette Highland Huron Jefferson Lake
Lorain Lucas Morgan Muskingum Ottawa
Portage Stark Warren Williams  

 

Why: Property Reappraisal and Updating can result in a Bigger Tax Hit

Most importantly with reappraisal and updating, is that they can result in increased property values and consequently increased tax liability. Property owners in particular counties subject to reappraisal or update will see new property values reflected in their property tax bills that arrive in the mail either December or January.  This is an often-overlooked tax consequence that many people fail to plan for and can eat up an otherwise expected, and critical, tax refund. As such, many people desire to keep their property values low, at least in regards to taxation, and want to challenge their county auditor’s assessment of their property value. This is where experienced Cleveland legal attorneys come in.

How: Filing a Complaint to Challenge Property Valuation

The period for filing formal challenges to a county auditor appraisal generally begins January 1 and ends March 31 so contact an attorney sooner rather than later if you want to challenge a recent change in your property value. Generally, property owners can only challenge an assessment one time every three years.

How you challenge an improper auditor valuation is with a complaint filed with your local county board of revision where the property under dispute is located. This complaint is sometimes referred to as a “complaint against valuation” and asks 14 boilerplate questions. Questions such as has the property been sold within the last 3 years, have you made any improvements to the property, and your justifications for requesting a change in value.

This form is found on every county auditor’s website as well as the Ohio Department of Taxation’s website. A lot of individuals challenge land valuation so the process, at least in some ways, is streamlined. Note, however, if the property owner challenging valuation is a business, an attorney must almost always sign the complaint.

The most common reasons property values are challenged include declining market values in a depressed area, functionally and/or economically obsolete properties, declining rents in tandem with vacancies, and damage caused by non-human agency, such as fire, flood, earthquakes, or mold. Further, those who recently purchased a property in an arms-length transaction for less than the county auditor’s value, often have a strong case. Note, however, recent Ohio Supreme Court rulings adjusted the evidentiary rules for property owners looking to use a recent arms-length transaction as a basis to challenge the value of real property. The important takeaway from recent legal rulings is that appraisal evidence must be carefully considered before presentment to the board of revision. As such, experienced legal counsel should be retained before filing any tax appeal.

Once the complaint is filed and received by the board of revision, the board sets an evidentiary hearing. The hearing usually lasts between 15 to 30 minutes and takes place in front of a panel of decisions makers, usually the county auditor, county treasurer, and the president of the Board of County Commissioners. At this hearing, an attorney appears on your behalf and presents arguments, evidence, and witness testimony to prove the actual property value. Depending on the value or discrepancy of the value under dispute, other interested parties, such as local school districts, will appear via their own counsel and argue in favor of the higher value.

After the hearing, the board of revision makes its decision of the value of the real property. If you took the proper steps, gathered the right documents, and hired the right attorney, your property value should be changed to reflect the real value and you can avoid any significant tax hit in the near future.

When: When should I challenge?

As with every legal question asked of every attorney, the answer is always going to be, it depends. But as rule of thumb, if it seems like no rational buyer would purchase your property for what the auditor appraised it, calling your local Cleveland business attorney is probably a good move.

Another critical factor in assessing when to challenge is the sufficiency of evidence currently in your possession. This is where good legal counsel comes in. Attorneys are well-versed in hiring qualified appraisers to determine the initial overvaluing of the property, generating presentable reports for the evidentiary hearing, and identifying the relevant purchase transaction documents. If you are asking for a significant change in value, it is highly likely opposing attorneys will come out of the woodwork to counter your appeal. As such, experienced local counsel is often the difference between a waste of time and money and significant tax saving.

Disclaimer:

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.

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