Generation Skipping Tax

An estate freeze with respect to Phyllis and Freddie’s family business corporation allows them to fix the value of their shares in the business at a particular date and create an opportunity for Phyllis and Freddie to transfer the future growth of a business, investments, or other assets to other taxpayers, children or other designated beneficiaries. By freezing a beneficiary’s estate, they will have to pay tax on the growth which results in a tax deferral until the beneficiary passes away or they will have to dispose of his/her shares.

* The original Act required that individuals be over the age of 16 years and not be supported by relatives in order for them to receive the payment

What potential tax problems might result if an individual pursues his plan to transfer 40% of the corporate stock to his two children as gifts? Would it make any difference if an individual received all voting stock and had the new corporation transfer nonvoting stock to his children?

The Internal Revenue Service (“IRS”) issued regulations called the “Clifford Regulations” in 1946. The Clifford Regulations formed the basis for Congressional codification of the grantor trust rules in current Subpart E in 1954. While income tax rates today are not as far apart as they were in 1954, and even though the IRS targeted abuses with the grantor trust rules, those rules offer favorable opportunities for taxpayers today.

31. Julius, a married taxpayer, makes gifts to each of his six children. A maximum of six annual exclusions could be allowed as to these gifts.

1) The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.

Came after the Baby Boomers, and typically covers people born between the mid 1960’s and the early 1980’s.

Before the 95-year old died, the taxes such as the estate, capital gains various other federal and state levies would have played a major role in his final decision.

New York Law grants the family of a decedent the right to exempt certain property from the decedent 's estate.

A landmark change in providing for the elderly came in 1935 with Franklin D. Roosevelt 's Social Security Act. While this provided aid to people with disabilities and mothers with children, aid was also mainly intended for the elderly. The premise of the act was that an individual would pay into the government through the years that they worked and upon retiring that person would receive benefits. Elderly Americans relied on this system to help pay for expenses that they might incur after they reached an age where they could no

Amendments in the 1950’s, 1960’s, and 1970’s defined specific earnings limits and allowed benefit payments to be reduced rather than entirely eliminated when these limits were exceeded. Since 1983, those 70 or older have been able to continue working without any earnings limits. Amendments to the Social Security Act passed in 1996 relaxed earnings limits for senior citizens who had reached full retirement age. Amendments in 1999 created stronger incentives and better supports for the disabled to engage in productive work. In 2000 Congress entirely eliminated the earnings limit for seniors who had reached the full retirement age, giving more seniors the freedom to work without reducing their Social Security benefits.

A generation skipping transfer (GST) is transfer property by gift or at death to a person two or more generations below that of the transferor, the recipient of the property is known as the skip person. Grandparent use a grandchild as a skip person, however a skip person does not have to be a family member. Any unrelated person is eligible to receive a generation skipping transfer as long as he/she is at least 37.5 years younger than the transferor.

By looking at the ratio of young to elder citizens at that time, idea of providing benefits to retirees from young employees’ taxes was logical. Only thing that Roosevelt was unaware of was the period of “baby boom” that was going to create trouble in the future with providing benefits. With the retirement of “baby boomers” in around 2018, real crisis will start for Social Security Administration with providing higher amount of benefits from lower amount of incomes.

The model of representation does make a difference depending on which model is used. English Per Stripes and Modern Per Stripes are essentially the same concept, however Per Capita at Each Generation does affect the outcome. For example, Nick would inherit $225,000 dollars under English Per Stripes and Modern Per Stripes, but $150,000 dollars under Per Captia at Each Generation. Depending on the different model, the amount received by each descendent will be affected.

The Social Security System Act was established in the year of 1935 not expecting the baby boomers to be born from the years 1946 through 1964. This is a dilemma because of declining birth rates and increased life expectancy, there are now only three age stratification workers for each beneficiary, and soon there will be only two because the elderly will retire. The system will not be able to support itself with such few workers to pay for so many beneficiaries.