Estate Finance Family Tax Planning Question

On January 2, 2018, Hank Brady establishes the Judge Hank Brady Irrevocable Dynasty Trust with Tenleytown Trust Company as trustee. The trustee has the discretion to distribute principal and income to Hanks son, Mike, and his children, Greg, Marcia, Jan, Peter, Cindy and Bobby to provide for their welfare. Upon Mikes death, the remainder is distributed in equal shares to Mikes children. On January 10, 2018, Hank transfers 100 shares of Brady, Inc. to the trust worth $1 million. Hank allocates $500,000 of his GST exemption to the transfer on his 2018 form 709.

A. On January 3, 2019, the trust makes a $10,000 distribution to Greg. On January 3, 2019 the fair market value of the trust is $1.5 million. Calculate any GST tax owed as a result of the distribution. Who is responsible for paying the tax? Discuss the inclusion ratio and applicable rate.

B. On January 3, 2020, the Mike dies. On January 3, 2020 the fair market value of the trust is $2 million. Calculate any GST tax owed as a result of Mikes death. Who is responsible for paying the tax? Discuss the inclusion ratio and applicable rate.