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

San Francisco, CA |

please advise... ty

Attorney Answers 3


  1. 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 only and is not legal advice. It must not be relied upon by you. Legal advice must be based on the exact facts of the particular situation. This forum does not allow for the discussion of those specific, exact facts. I provide legal advice only during the course of an attorney-client relationship. The exchange of information through this forum does not establish such a relationship with me. That relationship is established only by direct, individual consultation with me followed by the execution of a written attorney-client agreement by each of us. In this, as in all cases, you should personally consult with an attorney in your area for legal advice.


  2. 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 response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of California. Responses are based solely on California law unless stated otherwise.


  3. 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 and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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