GST Tax: Why Is There Another Transfer Tax on Top of Gift and Estate Tax?
GST tax is designed to prevent transfer-tax avoidance by skipping a generation that would otherwise have created another estate or gift tax event.
Skip person
A skip person generally includes someone two or more generations below the transferor, subject to detailed statutory definitions and exceptions.
Direct skip
A direct skip is a qualifying transfer directly to a skip person that is subject to the applicable transfer-tax framework.
Trust events
Taxable distributions and taxable terminations can trigger GST consequences when property moves through a trust structure.
GST exemption
A separate GST exemption can be allocated under current law, and planning often depends heavily on proper allocation.
The takeaway
Identify whether a transfer reaches a skip person and whether it is a direct skip, taxable distribution, or taxable termination before applying current GST rules.
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FAQ
Is every gift to a grandchild automatically subject to GST tax?
Not necessarily. Apply the statutory rules and exemptions.
Is GST tax separate from estate and gift tax concepts?
Yes, though they interact.
Can trusts create GST events?
Yes.