Generation-Skipping Transfer Tax(p4)

The GST tax may apply to gifts during your life or transfers occurring at your death, called bequests, made to skip persons. A skip person is a person who belongs to a generation that is two or more generations below the generation of the donor. For instance, your grandchild will generally be a skip person to you or your spouse.

The GST tax is figured on the amount of the gift or bequest transferred to a skip person, after subtracting any GST exemption allocated to the gift or bequest at the maximum gift and estate tax rates. Each individual has a GST exemption equal to the basic exclusion amount, as indexed for inflation, for the year involved.

GSTs have three forms: direct skip, taxable distribution, and taxable termination.

• A direct skip is a transfer made during your life or occurring at your death that is:
  1. Subject to the gift or estate tax,
  2. Of an interest in property, and
  3. Made to a skip person.
• A taxable distribution is any distribution from a trust to a skip person which is not a direct skip or a taxable termination.
• A taxable termination is the end of a trust's interest in property where the property interest will be transferred to a skip person.

If you think you will have a gift or bequest on which GST tax must be paid, see Form 709, Form 706, Form 706-NA, and the forms' instructions for more information. You can get publications and forms from the IRS website, www.irs.gov. You (or your estate) may want to speak with a qualified tax professional to receive help with GST questions.