Generation-Skipping Transfer Tax - Identify Transfers Subject to the GSTT
The GSTT occurs when a taxable transfer is made to a beneficiary that is more than one generation below that of the gift giver.
Skip Beneficiary can be either of the following:Exemptions and Exclusions from the GSTT
- A person that is at least two generations below the transferor, or
- A trust where the beneficiaries are two generations below the gift giver and from which no next generation person will benefit.
- Grandparent transfers property to a grandchild
- Grandchild would be a skip beneficiary
- Parent would be a non-skip beneficiary (next generation)
Grandchild with a deceased parent would not be a skip beneficiary of a transfer from the grandparents.
Taxes are imposed on three possible events: direct skips, taxable distributions and taxable terminations.
A direct skip is a straight transfer to a skip beneficiary, like a grandfather to a grandson. This can be accomplished by directly passing the gift or through the use of a trust.
Direct Skip Trusts include:
- No portion of the income or principal can be distributed to anyone else during the beneficiary's lifetime.
- The trust benefits only one individual.
- The principal is included in the beneficiary's estate should they die prior to the trust's termination date.
The transferor (or the estate of the transferor) is liable for the GSTT on direct skips.
A taxable distribution is any distribution of either income or corpus from a trust to a person two or more generations under the trust settlor's generation.
What makes this a GSTT taxable event?
- If the distribution escaped federal estate and gift taxation at the first generation level below the original transferor.
Liability falls on the skip beneficiary, not the trustee.
- Taxable amount is the amount received less any amount paid by the beneficiary to acquire the property.
A taxable termination occurs when there is a termination of a property interest that is held in trust which results in a skip beneficiary holding the property interests of the trust. There are several different ways that the termination might occur, some of which might be a release of power, lapse due to time or death.No taxable termination occurs if:
- Estate or gift tax is paid on the trust property one generation below the transferor at the time of termination.
- At least one non-skip beneficiary has an interest in the property.
- The skip beneficiary could not receive a distribution after the termination.
What is taxable?
The value of all property involved reduced by any amounts paid by the beneficiary (recipient) for the expenses, debts, income and property taxes for the property received.
Stock AnalysisExamine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
Mutual Funds & ETFsLearn about the top three metals and mining exchange-traded funds (ETFs), and explore analyses of their characteristics and how investors can benefit from these ETFs.
ProfessionalsUnderstand the differences between a career in financial planning and wealth management, and identify which is better for you based on your goals and talents.
Mutual Funds & ETFsDiscover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
Mutual Funds & ETFsFind out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Personal FinanceMany advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
ProfessionalsAmong the best universities for financial planning are the University of Georgia, Boston University, The College of Financial Planning, Texas Tech, San Diego State, Baylor, Fairleigh Dickinson ...
Investing BasicsDon’t skimp on the CFP designation. Here's why those three letters show that someone is qualified in financial and investment planning.
Mutual Funds & ETFsDiscover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
The excess return that investing in the stock market provides ...
The amount of risk that an insurance company retains after subtracting ...
Coverage that provides financial protection to investors, financial ...
The maximum loss from a peak to a trough of a portfolio, before ...
The absolute level of a fund's investments.
A technique used by insurance companies to calculate loss reserves.
Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>