What is the Generation Skipping Transfer Tax?
The generation skipping transfer tax (“GST tax”) applies to direct and indirect gifts to “skip persons”. Skip persons are related persons in more than one generation below the donor. For example, a gift to a grandchild or great nephew is a generation skipping transfer. If the donor and donee are not related, the donee is a skip person if he or she is at least 37 1/2 years younger than the donor. The GST tax rate is equal to the highest federal estate tax rate – currently 45%. Are there any exemptions from the GST tax? Each individual is currently entitled to a GST exemption of $2,000,000 which is applied to both lifetime gifts and transfers after death. In addition, outright gifts to skip persons that qualify for the annual exclusion from gift tax (currently $12,000) as well as direct payments of tuition and medical expenses made on behalf of a skip person are exempt from the GST tax. This is a very complicated tax! When should I be concerned about it? Lifetime gifts to skip persons (“
