Can you explain the role and advantages of a Generation Skipping Transfer (GST) Trust in Texas for passing wealth to grandchildren without incurring additional estate taxes?

The generation-skipping transfer tax (GSTT) is a tax imposed on property transfers that bypass a generation, commonly referred to as generation-skipping transfers (GST). Established to prevent families from circumventing estate taxes across generations through direct gifts or bequests to descendants like grandchildren or great-grandchildren, the GSTT ensures that assets are taxed in a manner similar to direct inheritance from parents to children.

By skipping the parent’s generation, the GSTT aims to prevent assets from being taxed twice as part of estate taxes. This tax ensures that assets transferred to grandchildren retain the value they would have had if inherited directly from their parents, rather than their grandparents.

In these transactions, the individual making the transfer is known as the transferor, while the recipient is termed the skip person. Although often a grandchild, a skip person need not be a family member; any individual more than 37½ years younger than the transferor can be designated as a skip person.

The GSTT applies when a transfer avoids gift or estate taxes at the generational level, serving as an additional tax layer to address potential tax avoidance through generation skipping. The tax is levied by the Internal Revenue Service (IRS) on amounts exceeding the estate and lifetime gift exclusions, ensuring that taxes are paid even when generations are bypassed.

For more detailed information or assistance with GSTT, contact the Law Office of Dana Baker in Texas at 979-310-5507.