Question 1: What is the generation skipping transfer tax?
The generation-skipping transfer tax is a federally imposed tax that typically applies when a grandparent gives a large amount of property to a grandchild. Commonly abbreviated as GST, the tax applies to either a gift made while the grandparent is still alive or through his or her estate. However, the grandparent’s child—the grandchild’s parent—must also be alive at the time of the gift for the tax to apply.
Question 2: When is this tax applied?
The GST can apply at any time, making it sort of a hybrid between estate and gift taxes. An estate tax only applies after a person dies and leaves behind an estate, while gift taxes apply only to gifts a person leaves during his or her lifetime. GST, on the other hand, can apply either to an estate or to gifts a grandparent gives.
Question 3: Who has to pay the tax?
Like the gift and estate taxes, the generation-skipping transfer tax has an exemption associated with it. So, it is a factor for people who are transferring sums that exceed the exclusion that is in place at the time of the transfer.
For persons who want to engage in multi-generational legacy planning, it is important to work with an experienced and qualified estate planning attorney to ensure that the planning goals can be accomplished while minimizing or eliminating tax consequences.