What is a generation skipping tax?

There is a tax whenever people leave a large estate to their kids. The same amount is taxed again when those kids leave money to their kids. The money was taxed when it was earned, it was taxed when it was passed to the first generation, then taxed a third time when it was passed to the next generation. To avoid one layer of taxes, rich people pass their money to their grandchildren directly, especially when their kids don't really need it. Congress doesn't like not getting money, so they passed a Generation Skipping Tax to get some of that.

By definition, a "skip person" is either 2+ generations younger and related to the deceased, or is unrelated and at least 37 1/2 years younger.

The generation skipping tax was created because the Gallo family was leaving millions in assets to grandchildren and great grandchildren so that these assets would not be subject to estate tax sooner as it would be if they gave it to their children.

The generation skipping transfer exemption is now $2 million per individual in your lifetime. If you leave more than $2 million to a skipped generation there is no GST tax but there is an estate tax that could be 45%. If you give more than $2 million then the amount above $2 million would be subject to an additional tax of 55% of the amount above $2 million.

I hope this makes it clear, it is rather complex' YOU CAN LEAVE ANYTHING YOU WANT TO YOUR CHILDREN AND THE gst TAX WILL NEVER APPLY