Skip Person

Skip Person

The transfer of a property to a person two or more generations younger than the person making the transfer. This may trigger a taxable event.
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2611(a) as a taxable distribution, a taxable termination, or a direct skip, all of which are transfers to or for the benefit of one or more skip persons. (4) A skip person is defined in Sec.
* Skip person: A person who is assigned at least two generations below that of the transferor.
Because the granddaughter is a "skip person" to whom the GST tax would apply, she sought a ruling that the exercise of the power of appointment would not cause the trust to lose its GST-exempt status.
These are transfers to a skip person that are subject to the estate tax or the gift tax.
So, for example, if you had a pot trust that was not GST-exempt but could make distributions to a grandchild or other skip person, a lot of clients or trustees would have made those distributions to grandchildren to shift assets out, because even if it was a GST transfer, there was no GST tax.
The federal generation-skipping transfer (GST) tax is a tax on the right to transfer property to a skip person (a person two or more generations (see Q 7578) younger than the transferor).
Regardless of what form an arrangement may take (whether, for example, a life insurance trust or an agreement with the insurer for payment of proceeds under settlement options, or an outright payment to a beneficiary), if an insured (or annuitant) transfers benefits to a "skip person," (see Q 951), generally, he has made a generation-skipping transfer.
There is no GSTT imposed on direct skip gifts that come within the gift tax annual exclusion (see chart on page 55) or that are "qualified transfers." In general, qualified transfers are payments for the education or medical care of a skip person. Special rules apply to transfers in trusts such as the irrevocable life insurance trust (see footnote 7 below).
The GST Tax in a Nutshell: A generation-skipping transfer (GST) tax is levied, in addition to any gift or estate taxes that apply to the transfer, on the value of life insurance (and/or any other property) transferred during lifetime or at death without adequate consideration to a transferee who is in (or who is assigned by statutory law to) a generation that is at least two generations below the transferor's generation (such a transferee is called a "skip person").
Thirdly, a client may wish to make direct transfers to a grandchild or other skip person for the beneficiary's support or enjoyment, or in order to avoid tax in the estate of the intervening generation.
A "taxable distribution" is a distribution to a skip person from a trust that also benefits non-skip persons.
Tax Facts Question 505 explains how we determine whether the GST tax will apply, and tells us that the GST tax applies to transfers made to "skip persons." Question 506 tells us that a "skip person" is a person who is two or more generations younger than the person making the transfer, and that a trust will be treated as a skip person if it can benefit only a skip person.