GSTT Generation Skipping Transfer Tax Flashcards
(19 cards)
What is the GSTT?
The Generation-Skipping Transfer Tax (GSTT) is a federal tax on transfers of property (during life or at death) to a “skip person”-someone at least two generations below the transferor, such as a grandchild, or an unrelated person more than 37.5 years younger than the donor.
What is the Generation-Skipping Transfer Tax Rate?
The tax rate equals the maximum estate tax rate at the time of transfer, multiplied by the “inclusion ratio”. Its purpose is to prevent families from avoiding estate or gift tax by skipping a generation.
Who is the transferor?
The person making the transfer. For lifetime gifts, the donor; for transfers at death, the decedent.
Who is the transferee?
The person receiving the property.
Who ia a skip person?
Related: Grandchildren, great-grandchildren, or more remote descendants
Unrelated: Anyone more than 37.5 years younger than the transferor.
Trust: A trust is a skip person if all beneficiaries are skip persons.
What is the Predeceased Ancestor Rule?
If a parent of a potential skip person is deceased at the time of the transfer, the grandchild is moved up a generation and is not a skip person for GSTT.
What are the three types of GSTT events?
Direct Skip: Transfer (e.g. gift or bequest) directly to a skip person; GSTT due at transfer by donor.
Taxable Distribution: Distribution from a trust to a skip person; skip person pays GSTT.
Taxable Termination: Trust assets pass to the skip person after non-skip person dies; trustee pays GSTT.
What payments are excluded from GSTT?
Tuition paid directly to an educational organization for a skip person.
Meical expenses paid directly to a provider for a skip person.
What is the annual exclusion for GSTT?
Direct skip gifts qualifying for the annual exclusion ($18,000 per donee in 2024, $19,000 per donee in 2025) are not subject to GSTT.
What is the GSTT exemption amount?
Each individual has a GSTT exemption equal to the federal estate tax exemption ($13.61 million in 2024)
How does gift splitting work for GSTT?
Spouses can split gifts for GSTT as for gift tax, treating gifts as half from each spouse. Election for one tax applies to both.
Who can allocate the GSTT exemption?
Only the transferor or their executor; allocation is irrevocable.
What is automatic allocation?
IRS automatically allocates GSTT exemption to certain transfers unless the taxpayer elects out.
What is late allocation?
Exemption can be allocated after transfer, based on asset value at allocation date.
What is the applicable fraction?
GST exemption allocated/(value transferred-death taxes-charitable deductions-nontaxable gift portion)
What is the inclusion ratio?
1-Applicable Fraction
How is the GSTT rate determined?
Inclusion ratio X Maximum Transfer Tax Rate (40% as of 2024/2025)
How are GSTT events reported?
Direct Skips: IRS FORM 709 (Gift Tax Return)
Taxable Distributions: Trustee notifies skip person on Form 706-GS(D-1); recipient files Form 706-GS(D)
Taxable Terminations: Trustee files Form 706-GS(T)
How can you minimize GSTT?
Allocate exemption to trusts for multiple generations
Use the Reverse QTIP Election to maximize estate tax benefits (but not both spouses’ GSTT exemptions)
Consider opting out of automatic allocation for direct skips to preserve exemption for indirect skips.
