Grandfather could marry grandson to avoid estate and generation skipping tax?

Suppose that a retired investment banker, now a widower, wants to give $25 million to a 20-year-old unmarried grandson. If he gives the grandson the money right now, it will be subject to a gift tax and/or possibly a generation-skipping tax. If he gives the grandson the money via a bequest, when the old man dies the inheritance will be subject to a federal estate tax (and also a generation-skipping tax?) plus, depending on the state of residence, an additional estate tax imposed by a state. If, on the other hand, the widower were to remarry and give this $25 million to a spouse, the transfer would be tax-free. Could the grandfather marry his own grandson? In the old days, the answer was an obvious “no.” A man could not marry another man. How about a grandfather marrying a granddaughter? That’s prevented here in Massachusetts by MGL Ch. 207:

Section 1. No man shall marry his mother, grandmother, daughter, granddaughter, sister, stepmother, grandfather’s wife, grandson’s wife, wife’s mother, wife’s grandmother, wife’s daughter, wife’s granddaughter, brother’s daughter, sister’s daughter, father’s sister or mother’s sister.

Under current laws, where same-sex marriage is legal in Massachusetts and recognized by the federal government, could the grandfather marry his grandson, give his spouse/grandson a tax-free spousal gift of $25 million, and then get a no-fault divorce after a couple of years? (if the marriage is too short, the IRS may disregard it (source))

9 Comments

  1. Rif

    January 21, 2014 @ 3:37 am

    1

    IANAL, but why isn’t there already a market in this? A and B are rich old men, they each marry the *other*’s much younger relative and give them a tax-free spousal gift of N million? Maybe this already happens?

  2. Jonathan Tappan

    January 21, 2014 @ 10:07 am

    2

    It sounds like the incestuous marriage law just needs to be updated to reflect same-sex marriage.

  3. Nic

    January 21, 2014 @ 12:56 pm

    3

    For that matter, “son” isn’t in there either.

  4. ScarletNumber

    January 21, 2014 @ 10:23 pm

    4

    I would say “no” because judicial review of the law would say that the legislative intent would be that a grandparent can’t marry a grandchild.

  5. Mark

    January 22, 2014 @ 1:49 am

    5

    ScarletNumber,

    Are we now gonna legislate someone’s ability to declare their love for another?
    I would think this would be absolute anathema to the folks in America who support gay rights so fervently.
    This has to be one of the more potent questions Phil has ever posed.

  6. Bambang Nurcahyo Prastowo

    January 22, 2014 @ 6:10 am

    6

    As far as I am concern, the purpuse of incestuous marriage law has something to do with genetic rules to prevent bad offspring. Same sex marriages won’t cause any genetic problem.

  7. Wendy Goffe

    January 22, 2014 @ 10:51 am

    7

    Treas. Reg. §26.2651-2(b) prohibits the use of adoption to avoid generation-skipping transfer tax. This regulation was put in place in 2005.

  8. Jack

    January 22, 2014 @ 4:59 pm

    8

    I thought of this. A more common situation would be for some young unmarried women (or men) to pair off to get insurance from the ones with the best deals at work and draw Social Security from the ones with the best career path.

    As I understand it, as long as one collecting SS was married to the person for 10 yrs and hasn’t remarried, that person draws SS from the partner. So the most prosperous member of the group can marry one from 22-32, another from 32 to 42, another from 42 to 52, and another from 52-62. At that point the value of the benefit for a future spouse would decline.

  9. Tim

    January 23, 2014 @ 2:40 pm

    9

    Under MGL c 4 s 6, “words of one gender may be construed to include the other gender and the neuter”, so I don’t think this is going to fly as an attempt to marry an heir to make use of a marriage estate tax loophole.

    You may have more luck getting old enough to marry a great-grandchild, regardless of gender; that doesn’t appear to be prohibited.

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