The 250 Estate Planning Questions Everyone Should Ask by Lita Epstein

Author:Lita Epstein [Epstein, Lita]
Language: eng
Format: epub, pdf
Tags: Estates & Trusts, Practical Guides, General, United States, Personal Finance, Estate planning, Business & Economics, Trusts and trustees, Law, Popular works, Finance; Personal
ISBN: 9781598694154
Publisher: Adams Media
Published: 2008-04-01T04:00:00+00:00

Generation-Skipping Transfer Tax

You can avoid paying any gift taxes by applying that gift to your applicable credit amount of $1 mil ion over your lifetime in gift taxes. You can stil skip generations by giving money to your great-or great-great-grandchildren, or any person who is more than one generation younger than you, because a gift tax is only applied once even if you skip more than one generation with your gift. You won’t be subject to GSTT if you pay medical or educational expenses directly for any person who is more than one generation younger than you.

Question 140. What is the difference between a skip person and a non-skip person?

You may find when discussing estate strategies with your financial adviser that she uses the term skip person or non-skip person. A skip person is two or more generations younger than you or your spouse. Anyone who does not fit the definition of a skip person is considered a non-skip person.

While you might think that generation assumes a blood relationship, it doesn’t for the purposes of the generation-skipping transfer tax. The only thing the law considers is how many generations there are between the person giving the gift and the person receiving it. If generations are determined by age and not blood relationships, then for the GSTT to apply, any person receiving funds must be more than 37½ years younger (the period that the law defines as a “generation”) than the transferor.

A spouse or former spouse is always considered to be in the same generation, and GSTT does not become a factor when assets are transferred. Also charitable entities are not a factor when considering the GSTT.

Another exception that rules out the need for GSTT involves a family situation where a parent or grandparent dies. A child can move closer in generation to the living, and GSTT would not be a factor in the gift. For example, suppose a grandparent made a transfer to a grandchild, because his or her child had already died.

The grandchild would not be considered a skip-person because

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