Skip Person

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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.
References in periodicals archive ?
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.
** Trusts for the benefit of skip persons are treated as skip persons when all beneficiaries eligible or entitled to receive trust income or principal are skip persons, or no person is currently eligible or entitled to receive trust income or principal, and at no time may distributions be made to beneficiaries who are not 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.
The GST tax is currently a flat 35% tax imposed on transfers to "skip persons," a term which includes family members more than one generation removed and unrelated persons more than 371 years younger than the donor.
GST exemption can be allocated to trusts benefiting skip persons; while allocations are not made to trusts benefiting non-skip persons.
When an agreement adjusts grandchildren's interest or those in lower generations from the decedent, defined as "skip persons," (21) GSTT issues must be considered because the GSTT is at the highest estate tax rate.
Where insurance proceeds held by an insurance company are to be paid to skip persons in a direct skip at death (a direct skip can occur whether proceeds are paid in a lump sum or over a period of time) and the aggregate value of such proceeds held by the company is less than $250,000, the executor is responsible for filing and paying the GST tax; consequently, the insurance company can pay out the proceeds without regard to the GST tax (apparently, the insurance company could not do so if the executor attempts to recover
(1) Because grandchildren are two or more generations below the grandparent (transferor), they are known as skip persons, whereas children are known as nonskip persons (the transferor's spouse is also a nonskip person, since she is of the same generation as the transferor).
Direct skips are transfers-by gift or at death-to one or more skip persons. A direct skip may be a transfer to a trust under certain circumstances.
On the other hand, if all the beneficiaries of a trust are skip persons, a transfer to a trust for such people would be considered a transfer to a skip person.
In addition, since the original donor's GST tax exemption was allocated to the exempt trust, when the trust passes to the grandchildren or their issue (all classified as skip persons), it is exempt from generation-skipping tax.
The GST tax is imposed on three types of asset transfers to "skip persons," individuals who are, or are deemed to be, two or more generations below the transferor.