What are gift, estate, and generation-skipping transfer taxes?
A. Federal transfer taxes are imposed when property is transferred from one person to another. A gift tax may be imposed when a transfer is made during the gift giver’s life. The estate tax may be imposed when the transfer is made upon the gift giver’s death. Generally, the generation-skipping transfer tax may be imposed when the transfer is made to a person who is more than one generation younger than the gift giver; for example, a grandchild. Note that the generation-skipping transfer tax is imposed on transfers made during the gift giver’s life or as a result of the gift giver’s death and is in addition to the gift or estate tax. Under current law, the lowest gift tax rate is 41% and the estate and generation-skipping transfer tax rates are 45%. Consequently, planning to legally avoid these taxes is an important part of estate planning.
