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.
Options & FuturesFutures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
Products and InvestmentsThe 10 steps outlined here are essential to the creation of a new financial product.
ProfessionalsHere's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
ProfessionalsThere’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
Saving and SpendingRetirees who don't want to deplete their nest eggs during a bear market should make sure to do the following.
Mutual Funds & ETFsGet a brief overview of Fidelity's seven target risk funds, with a description of each fund's asset allocation and expense ratio.
Investing NewsWarning signs have started to emerge that point to a potentially dismal 2016 for the U.S. economy.
MarketsAlgorithmic HFT has a number of risks, and it also can amplify systemic risk because of its propensity to intensify market volatility.
Mutual Funds & ETFsExplore analyses of the top three Invesco mutual funds for retirement diversification in 2016, and learn about the characteristics of these target-date funds.
Investing BasicsHedging risk is always a good idea. Here is how sophisticated investors go about it.
A modification of the Sharpe ratio that differentiates harmful ...
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.
Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
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 >>