What is the Generation Skipping Transfer Tax (GST)?
The GST is an additional transfer tax that applies when a transfer skips a generation. An example of when this might occur is when parents leave part of their estate to grandchildren. In the past, wealthy grandparents made use of trusts that left a life income to their children. On the death of their children, the trust would leave a life income to the grandchildren. On the death of the grandchildren, the principal would then be distributed to great grandchildren, avoiding Estate Taxes at the prior skips in generations. This allowed for the accumulation of wealth and appreciation of assets. Congress then added the GST to impose a transfer tax for individuals bypassing their childrens generation. For 2002, the GST is at a 50% tax rate. The GST is in addition to the Estate Tax, which is also taxed at a 50% rate in 2002. The good news is that in 2002, each individual is allowed a $1,100,000 GST exemption, which can be used with a revocable living trust to allow a husband and wife to take
