Taxation of Estates and Gifts

Generation-Skipping Transfer

A generation-skipping transfer, where one gives to his grandchild, is subject to a GST tax. 26 U.S.C. § 2601.

A GST is a taxable distribution, taxable termination, or direct skip.

Direct Skip

A direct skip is a transfer subject to a gift or estate tax that is made to a skip person.

Direct Skip Nontaxable Gift

A transfer excluded from gift tax by the annual exclusion amount or by medical/education exclusions is also excluded from the GST tax. 26 U.S.C. § 2642(c).

DSNG Separate Share Rule

A transfer to trust does not qualify as a DSNG however unless it is distributable only to that individual during his life and the trust assets will be includable in that individual's federal gross estate if he dies before the trust terminates. 26 U.S.C. § 2542(c)(2)(A)–(B).

Just because a transfer to trust is eligible for for the annual exclusion amount does not mean that it is a DSNG.

Skip Person

A skip person is an individual two or more generations below the the transferor. 26 U.S.C. § 2613(a)(1).

A trust also counts as a skip person if all interests are held by skip people. 26 U.S.C. § 2613(a)(2).

Entities are treated as being owned by the individuals owning them. 26 U.S.C. § 2651(f)(2).


A skip person has an interest in a trust if he can receive current distributions of income or principal. 26 U.S.C. § 2552(c).

This is different that what is a "present interest" for annual exclusion purposes.

Taxable Termination

A termination of an interest in a trust is a taxable termination if it leaves only skip persons as beneficiaries of the trust.

A generation-skipping transfer tax is imposed when a taxable termination occurs.