Understanding the Hierarchy of Generation-Skipping Transfers

Gallo, Jon J.
April 2004
Journal of Financial Planning;Apr2004, Vol. 17 Issue 4, p32
Academic Journal
The article explains the hierarchy of generation-skipping transfers (GST). Generation-skipping transfers are subject to tax at a flat rate equal to the highest marginal estate tax rate in effect at the time of the transfer. Each taxpayer possesses a GST exemption equal to the estate tax exemption. There are three types of generation-skipping transfers: direct skips, taxable distributions and taxable terminations. A direct skip is a transfer to a skip person (someone two or more generations younger than the transferor) who is also subject to estate or gift tax. A taxable termination is the termination of a beneficiary's interest in a trust as a result of death, lapse of time or other reasons, unless a new transferor is determined at the time of the transfer, that is, the transfer is subject to estate or gift tax at the time of the termination event; immediately after the termination, a non-skip person has a present interest in the property; or after the termination, no distribution may be made from the trust to a skip person. Taxable distribution is a distribution of either income or principal from a trust to a skip person that is neither a taxable termination nor a direct skip.


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