Tax Planning

Creating A Legacy By Focused Asset Protection

The first step to creating a legacy is to generate income. The second step is to preserve and grow that income. Attorney Rod Hatley understands the full scope of what it means to take a holistic approach to wealth and the steps and vision needed to create and protect abundant wealth.

What Is the Generation-Skipping Transfer Tax?

Also known by its acronym GSTT, this is a federal tax that was introduced in 1976. It is incurred whenever there is a large gift or transfer of property. It only happens if the recipient of the gift or property is 37.5 years younger than the person giving it.

Before my husband’s passing, we worked with another estate planning attorney. We put into place estate planning documents to supplement a special needs trust (SNT)… “Deb E.”

Deb E.

This means it applies typically to grandparents who wish to give their grandchildren large gifts. The GSTT may make these donors vulnerable to significant tax penalties.

  • The flat rate is 40%. This means any asset or money over $11.7 million (2021 value) that is given to anyone 37.5 years or more younger than the donor will be assessed a 40% tax. If the estate is valued at $20.7 million, then $9 million (the amount that exceeds the allowable $11.7 million) will be taxed at 40%, which is $3.6 million in taxes.
  • This tax will be applied to anyone, family member or not, who receives a significant gift.
  • The transferor (person who gives the gift) must pay the tax.
  • There is an exception if the grandchildren’s parents have died; in that case, the grandparents can leave money to the grandchildren as if they were their children, without being assessed the GSTT.

There are ways to protect these assets. One option to avoid the GSTT is to use your $1 million GST exemption.

There Are Many Ways To Avoid The 40% GSTT

There are many ways to avoid paying the high tax rate that the GSTT incurs. But which path is best for you depends on two things: your financial situation and your goals. Here are some options that you may wish to consider with the guidance of your estate planning attorney:

  • Gifting property that is likely to increase in value.
  • Giving annual monetary gifts that avoid the gift tax.
  • Investing directly in your grandchild’s education.
  • Taking out a life insurance policy with your grandchild or grandchildren as the beneficiaries.
  • Creating a minor’s trust, irrevocable trust or Crummey trust

Rod Hatley can advise and work with you to find the best options for you and your family. The best step to take is to plan now.

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Get Maximum Protection For Your Assets

Hatley Law Group APC was founded with the intent of helping parents leave a meaningful and lasting legacy for their children and grandchildren. Rod Hatley will work with you to make the most of the opportunity you have to create a lasting impact and tell your story for generations. Book a Call to find out more. You can also reach the firm by sending an email. Based in San Diego, Rod meets with clients all over California.

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