Friday March 29, 2024

1.4.1 Generation-Skipping Transfer Tax Overview

Generation-Skipping Transfer Tax (GSTT) Overview

Direct Skip:   A direct skip is an outright transfer, usually not in trust, from the decedent to a skip person.

Taxable Termination:  A taxable termination is a distribution of principal and, if applicable, accumulated income to a trust beneficiary who is a skip person.

Taxable Distribution:  Any payment to a skip person is a taxable distribution.

The Generation-Skipping Transfer Tax (GSTT) is applicable for a transfer to a skip person. A skip person is a descendent two or more generations away from the grantor and is usually a grandchild or a great-grandchild. Sec. 2613(a). If the beneficiary is not a grandchild or a great-grandchild, then the second generation is defined as a person 37½ or more years younger than the decedent. However, if a child is deceased, then that child's children will be moved up to the child's generation. Sec. 2651(e).

Direct Skip


A direct skip is an outright transfer, usually not in trust, from the decedent to a skip person. However, there may still be a direct skip in trust, if the skip person holds all of the interests in the trust. Sec. 2612(c). The tax on a direct skip is paid by the decedent's estate.

Taxable Termination


A taxable termination is a distribution of principal and, if applicable, accumulated income to a trust beneficiary who is a skip person. For example, when a charitable lead trust terminates, distribution of the trust corpus to the grantor's grandchildren would be a taxable termination. Sec. 2612(a). The trustee pays the GSTT on a taxable termination.

Taxable Distribution


Any payment to a skip person is a taxable distribution. For example, if a charitable remainder unitrust were set up for the grandchildren of the transferor, the income distributions would constitute taxable distributions. Sec. 2612(b). With a taxable distribution, the recipient is required to pay the GSTT.

Private Letter Rulings

PLR 200509002 Partition of Trust Won't Trigger GSTT:   Decedent created a trust prior to December 25, 1985 to make quarterly payments, one-half to be paid to spouse and the other half to be divided between children A, B and C. Decedent's spouse and children A and B died, leaving child C and the children of A and B (decedent's grandchildren) as beneficiaries. The trustee proposes to divide the trust into three separate trusts of equal value to meet the differing needs of the current beneficiaries.

PLR 200626008 Extension Granted to Make GSTT Exemption Allocations:   H and W established two irrevocable trusts. Trust 1 is for the benefit of D and her descendents and Trust is for the benefit of S and his descendents. After funding the trusts, H and W filed Form 709, the United States Gift and Generation Skipping Transfer Tax Form. H and W elected to treat the gifts as made one-half by H and one-half by W as permitted under Sec. 2513.

PLR 201108002 Extension to Allocate GSTT Exemption:   An irrevocable trust ("Trust") was set-up by Husband to benefit children and remote issue. On Date 1, Husband and Wife ("Taxpayers") each transferred X% interested in a limited partnership to Trust.
PLR 201231002 Extension Granted to Allocate GSTT Exemption:   In Year 1, Taxpayer established and funded Trust with generation skipping transfer ("GST") potential.

PLR 201352002 Periodic Payments Won't Be Subject to GSTT:   Decedent passed away in 2010. Upon her death, Decedent designated that a certain percentage of her commercial annuity ("Annuity") pass to Trust for the benefit of Grandchild. .

PLR 201607022 GSTT Allocation Extension Allowed:   Taxpayer and Spouse established an irrevocable trust in Year 1 primarily for the benefit of their children. That trust provided for three additional trusts (the Trusts) to be created, to which would be allocated equal portions of amounts of annual contributions to the original trust that would qualify for the generation-skipping transfer (GST) exemption under Sec. 2631.


      Quiz-Basic



© Copyright 1999-2024 Crescendo Interactive, Inc.