Model Offshore Trust
And Generation-Skipping Tax

So long as the Beneficiary Class of your Model Offshore Trust includes any individual who is not a Skip Person (a person more than one generation younger than you), your transfers to the Trust will not attract the generation-skipping tax. Potential liability for the tax would come later, when distributions are made to members of the Beneficiary Class who are Skip Persons.

If you anticipate a potential liability for generation-skipping tax, because gifts and bequests to your grandchildren or other Skip Persons might exceed $5.45 million ($10.9 million for husband and wife who give together), the following approach can reduce or eliminate the actual tax.

Advise the Trustee to separate a portion of the Trust Fund worth less than $5.45 million for the exclusive benefit of your grandchildren or other Skip Persons. File a gift tax return to report the generation-skipping transfer. That portion of the Trust Fund and all its investment returns will forever be outside the gambit of the generation-skipping tax.

At any time thereafter, whether during your lifetime or not, at the advice of the Protector, the Trustee can undertake transactions that starve the portion of the Trust that still is potentially subject to generation-skipping tax and that feed the portion of the Trust that is outside the gambit of generations-skipping tax. These are the same kinds of transactions discussed in connection with estate planning at Offshore Estate Planning.

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