What exactly is Generation Skipping Transfer tax? What does it mean to a next in line heir?

Asked almost 2 years ago - San Francisco, CA

please advise... ty

Attorney answers (3)

  1. Janet Lee Brewer

    Pro

    Contributor Level 17

    9

    Lawyers agree

    Answered . Mr. Daymude gave a good explanation. To add to it ... the generation skipping transfer tax applies if more than a certain amount is given to anyone other than your spouse and children or to unrelated people who are more than 37-1/2 years younger than you (so if you're 60 and you give assets to someone who is age 22-1/2 or younger, it would be a generation-skipping gift). Until Dec. 31st, you won't run into the generation-skipping tax until you give away more than $5.12MM dollars. Unless Congress fixes the law beginning 1/1/2013, you could run into this problem if you give away over $1MM.

    The tax is a flat 55% on all gifts that are considered "generation-skipping transfers". That tax is in addition to - not instead of - the "regular" estate tax. So if you had a $6MM estate and gave it all to a "skip person" this year, you'd pay the regular 35% estate tax on $6MM - 5.12MM and you'd pay an ADDITIONAL 55% Generation-Skipping Tax. If you wait until next year and the exemption goes down to $1MM, you'd pay up to 55% regular "sliding-scale" estate tax on $6MM - $1MM (the exemption decreases next year and the maximum tax rate increases) PLUS the 55% GST Tax.

    This is an area that has a number of very technical requirements and there are several exceptions to the rule (for example, if the donor is making the gift to his grandchild because his child - the grandchild's parent - is deceased, the grandchild is not considered a "skip person"). If you have questions, you need to consult a competent estate planning lawyer for assistance.

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The... more
  2. Michael Raymond Daymude

    Pro

    Contributor Level 20

    6

    Lawyers agree

    Answered . There is a federal estate tax and a federal gift tax. The purpose of the gift tax is to prevent reduction in federal estate taxes through gifts. The purpose of the estate tax is to tax estates estates over a certain size. In 2012, only estates over $5.12M are taxed. In 2013 that sum is reduce to $1M. The generation-skipping transfer tax is imposed to prevent reduction in federal estate tax liability because the transfer has "skipped a generation" and has been made to grandchildren, as opposed to a child. It is imposed when a transfer by gift or trust avoids incurring a gift or estate tax any particular generation level.

    I am licensed in California only and my response assumes California law. It is provided as general information... more
  3. Steven J. Fromm

    Contributor Level 20

    6

    Lawyers agree

    Answered . Both attorneys offer tremendous answers. The point here is that this is a SECOND estate tax that can result if too much is given to grandchildren. However, if it is less than $5,120,000 this year then there is no problem. Therefore, in the right situation setting up a GST trust would be ideal in 2012. Get with an estate planning attorney immediately.

    Hope this helps.

    Please remember to designate a best answer to your question.

    Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336, his email address is sjfpc@comcast.net , for more tax, estate and business articles visit his website www.sjfpc.com. and blog

    LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia... more

Can't find what you're looking for? Ask a Lawyer

Get free answers from experienced attorneys.

 

Ask now

30,720 answers this week

3,114 attorneys answering

Ask a Lawyer

Get answers from top-rated lawyers.

  • It's FREE
  • It's easy
  • It's anonymous

30,720 answers this week

3,114 attorneys answering