What Is The Generation Skipping Tax?

Many of the estate tax laws address property that is passed from one generation to the next

, such as from a parent to a child. Those laws allowed families to circumvent estate taxes by skipping a generation, and leaving property to grandchildren. Thus, the generation skipping tax (GST) was created to make sure that families could not skip over a generation in order to skip out on taxes.

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Many of the estate tax laws address property that is passed from one generation to the next, such as from a parent to a child. Those laws allowed families to circumvent estate taxes by skipping a generation, and leaving property to grandchildren. Thus, the generation skipping tax (GST) was created to make sure that families could not skip over a generation in order to skip out on taxes.

The GST is an additional tax that is imposed on property left or gifted from a grandparent to a grandchild whether it is transferred as a gift, by a will or by creating a Trust. The GST tax is also relevant if property is passed or gifted to any individual that is more than 37.5 years younger than the individual.

So who is responsible for paying this tax? It depends on the type of skip:

Direct skip - A direct skip occurs when the funds subject to GST are transferred directly from the donor to the skip person either during their lifetime or by will. The executor of an estate pays the GST if the transfer is made by will, if the transfer is done by gift, the donor pays the GST.

Taxable distribution: A taxable distribution occurs when the funds subject to GST are transferred to the skip person by distribution from a Trust. The recipient of the distribution pays the GST.

Taxable termination: A taxable termination occurs when the funds subject to GST are transferred to the skip person when a Trust terminates, and in these cases, the trustee of the Trust pays the GST.

With the changes in estate taxes and generation skipping transfer taxes currently in flux, but slated to go into effect in early 2011, now is the time for estate planning that can reduce estate taxes while meeting the needs and goals of your family.

by: SchneiderLawOR

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