A generation skipping transfer occurs when an individual makes a gift to:
- lineal descendants of his/her grandparents or lineal descendants of a spouse’s grandparents who are at least two generations below the transferor or transferor’s spouse (i.e., grandchildren and their issue; a brother’s or sister’s grandchildren and their issue; an aunt’s or uncle’s great grandchildren and their issue), or
- persons who are not lineal descendants and are more than 37½ years younger than the transferor.
There are three types of generation skipping transfers:
- Direct Skip Gifts are transfers made directly to “skip persons” or to a trust that benefits only skip persons (e.g., grandchildren, etc.) In addition to direct skip gifts, there are deferred types of generation-skipping transfers. These are usually GSTs that involve an irrevocable trust.
- A Taxable Termination occurs when an interest in property is held in a GST trust, and the last member of a non-skip generation (e.g., children) has his or her interest in the trust terminated, and only skip persons remain as trust beneficiaries for that interest in the trust.
- A Taxable Distribution occurs when a GST trust makes a distribution to a skip person that is not considered a direct skip or taxable termination.