WHAT ARE FEDERAL GENERATION-SKIPPING TRANSFER TAXES?
Generation-skipping transfer (GST) taxes may be imposed where transfers (beyond an “exemption” amount) are made to persons two or more generations below the transferor, even if interests are created for persons only one generation below. The exemption amount in 2009 is $3,500,000. A very complicated tax on certain kinds of “transfers” entered the federal tax scene in a new form in 1986. This tax, called a tax on generation-skipping transfers (or “GST” tax), is a flat tax at the highest Federal Estate Tax rate and is designed to tax the gift or distribution of property to, or the termination of certain interests which result in the distribution to or creation of interests in, persons who are in a generation two or more generations removed from the person who is treated as the transferor. The simplest example of such a transfer would be a direct gift from a grandfather to a grandchild. There are limits, however, upon the “taxable” portions of such transfers. Fortunately, each person (as
