Confused about estate tax exemption and GST exemption interaction for multigenerational wealth transfer

Your questions are really good ones! Let me try to clarify how these exemptions work together. Estate tax and GST exemptions are separate pools of exemption amounts that apply to different types of transfers. They run parallel to each other rather than one after another. For your scenario with $60M and $25M in combined exemptions: 1. The $20M to your daughter uses $20M of estate tax exemption (leaving $5M), but doesn't use any GST exemption since it's not a generation-skipping transfer. 2. For the $40M to your granddaughter: - You'd use your remaining $5M estate tax exemption first - The remaining $35M would be subject to estate tax - Separately, you have $25M in GST exemption to allocate to this transfer - You can apply the full $25M GST exemption to shield that portion from GST tax - The remaining $15M ($40M - $25M) would be subject to GST tax GST-exempted portions can still be subject to estate tax - they're separate systems. So a portion of the gift could be exempt from estate tax but subject to GST tax, exempt from GST tax but subject to estate tax, exempt from both, or subject to both. The portion that exceeds both exemptions would indeed be subject to both estate tax and GST tax, which creates a pretty hefty tax burden.

I went through similar confusion with my estate planning last year. I discovered this tool at https://taxr.ai that really helped me understand how these exemptions work together. You upload your financial documents and it generates a personalized report showing how different estate planning strategies would impact your tax situation. It was super helpful because it showed me side-by-side comparisons of different approaches - like how much would go to each heir under different scenarios, and the tax implications of each. It basically translated the complex tax code into plain English with actual numbers from my situation. The visual charts made it much easier to understand the interaction between estate tax and GST exemptions than when my attorney was just explaining it verbally.

I was initially skeptical about using tools like taxr.ai for something as complex as GST planning, but I decided to try it before my meeting with my estate attorney. I have to say I was really impressed. The visual breakdown of how my assets would be distributed and taxed across generations made the concept of "tax leakage" crystal clear. It showed me exactly how much would go to taxes versus to my heirs under different strategies. My attorney said I came to our first meeting more prepared than 95% of his clients. The best part was that I could play around with different scenarios on my own time without paying $600/hour to have my attorney explain basic concepts. When we did meet, we jumped right into the more advanced planning strategies. Definitely worth checking out if you're feeling confused about estate and GST exemptions.

For situations this complex, I usually recommend connecting directly with an IRS specialist rather than trying to piece together information. I was in a similar situation with a multi-generational estate plan and spent weeks trying to get through to someone knowledgeable at the IRS. I finally discovered https://claimyr.com and used their service to get a callback from the IRS instead of waiting on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I got connected with a specialist who walked me through exactly how the GST exemption would apply in my situation. The IRS agent explained that because the rules are so nuanced, especially with the current exemption amounts scheduled to sunset in 2025, getting an official interpretation directly from the IRS gave me confidence that our plan would work as intended.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it myself because I had a complex question about GST tax allocation that my accountant couldn't answer clearly. The service got me through to an IRS estate tax specialist in about 15 minutes. While they didn't give me planning advice (as expected), they did clarify several technical points about how GST exemption allocation works that even my accountant had wrong. Most importantly, they confirmed that automatic allocation rules would apply differently to certain types of trusts than what I had understood. This one clarification potentially saved us from making a major mistake in our planning. So while they won't design your estate plan, getting authoritative answers on technical tax questions directly from the IRS was definitely worth it. Much more reliable than trying to interpret contradicting articles online.

Don't forget about portability! One thing that confused me in my own planning was understanding how portability works with these exemptions. The estate tax exemption is portable between spouses, meaning if one spouse doesn't use their full exemption, the surviving spouse can use what's left. But the GST exemption is NOT portable. So if the first spouse to die doesn't use their GST exemption, it's gone forever. This creates a lot of planning complexity when you're trying to maximize what goes to grandkids. You might need to set up a trust at the first death that uses the deceased spouse's GST exemption even if you don't need it for estate tax purposes.

OP, I think you're making a common mistake in how you've set up your example. You mentioned having $60M with $12.5M exemption per person, so $25M total exemption. But then you said $20M to your son uses $20M exemption with $5M left. That doesn't add up. If you have $25M combined exemption and use $20M for your son, you'd have $5M left for your grandson, not $35M. You might want to double-check your numbers because it changes the whole calculation.

Don't forget about appreciation! If you're still relatively young, consider that the assets you're planning to leave might grow significantly. $60M could become $100M+ over 10-20 years. Since the exemption amounts are likely to grow much more slowly (if at all), you might want to do some lifetime gifting to lock in today's exemptions. Even if you don't transfer the full amount now, moving appreciating assets out of your estate earlier can save a fortune in taxes. My parents did this with some startup stock that ended up growing 15x. By putting it in trusts for the grandkids early, they avoided millions in estate and GST taxes that would have been due if they'd waited.

This is such a helpful discussion! I'm dealing with similar estate planning questions and the interaction between these exemptions has been keeping me up at night. One thing I'd add is the importance of timing with the current exemption amounts. The current high exemptions ($12.92M per person in 2023) are set to sunset after 2025, potentially dropping back to around $6-7M per person. For estates like yours, this creates a real urgency to lock in planning strategies now. If you wait until after 2025, you might lose half of your combined exemption capacity. Even if Congress extends the higher exemptions, there's no guarantee. This is why so many high-net-worth families are accelerating their estate planning right now. Have you considered doing some lifetime gifting to your granddaughter now to use up your current exemptions while they're still available? You could potentially save millions in future taxes by acting before the exemptions potentially decrease. Just something to discuss with your estate attorney - the time value of using these exemptions now versus waiting could be enormous.