By Darlynn Morgan, California Asset Protection Lawyer

Have you started holiday shopping yet? If so, how is it going?  

If you are like me you are trying your best to fit it in with all of the other holiday planning and day-to-day obligations. 

But what if I told you the solution is to skip the malls when looking for a holiday gift for your grandkids?  What if I told you that you should give them a family limited partnership instead?

Let me explain…

Thanks to the inactivity of congress, there is a loophole offering many people a tax-free way to pass on some of their wealth to their grandchildren. 

This is the generation-skipping transfer tax, or GST,  estate tax has been repealed for 2010.

 This means that you can leave outright gifts to your grandchildren as long as those gifts meet certain conditions.  The definition of a “gift” is fairly broad, but one way to take advantage of this is to set up a partnership and then give away units to your grandchildren.

In simple terms, that means you can put funds into a family limited partnership and transfer them tax-free.  It also transfers your gift in such a way that your grandkids don’t get total control of the money and therefore can’t squander it all at once.

However, the GST is different than income, estate and gift taxes.  The purpose of this tax is to keep people from transferring property many generations down without paying any tax.  So, the GST is imposed if the transfer avoids any of the taxes I just named.

So for example, say a man dies with a large estate and leaves his property in a trust with the income payable to his children.  At his death, his trust assets go to his children.  The man’s estate would then owe estate tax.  But when his children die, the trust property would not be taxable in their name so the family will have avoided paying for a generation of estate tax. In this instance, the GST would apply.

It is important to point out that the GST applies to anyone, not just family, so this would apply to unrelated beneficiaries as long as they were at least 37 and one-half years younger than the deceased.

There are limits to what you can exempt in generation skipping gifts and you are only allowed to use them in certain circumstances.  So, it is important to talk to an experienced California asset protection lawyer when considering this. 

So, as you ponder your holiday list you might want to consider this for your grandchildren.  This will be a gift they will remember (and thank you for!) for the rest of their lives!