Understanding the “Skip Person”

In this post, I define a skip person for purposes of the generation-skipping transfer tax*. For more detailed information, please see my book, *The Simple Guide to Estate Planning: A Look at Wills, Trusts, and Taxes. 

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In a previous post, I discussed the generation-skipping transfer tax (GST). To understand the tax, it is important to understand who qualifies as a skip person. In this post, I will discuss how to determine if the recipient of a property transfer is a skip person.

So, who is a skip person?

To determine whether a GST tax event has occurred, you must determine if the property recipient is a skip person. There are different tests for determining who qualifies. There is one for lineal relatives (relatives that share a common ancestor). Then, there is another test for everyone else.

A Skip Person and Lineal Relatives

For lineal relatives, the tax applies where the transferee is two or more generations younger than the transferor. To qualify as lineal relatives, the transferor and the transferee must share a common ancestor.

The common ancestor must be no further back than a grandparent of the transferor. So, the transferor and transferee could be actual lineal relatives without qualifying as such for purposes of the GST.

So, if the transferee is a descendant of the transferor’s great-grandfather but not of one of the transferor’s grandparents, they are not lineal relatives. This test may seem overly complicated. This is particularly true since the tax normally applies to transfers from grandparents to grandchildren where the tax’s applicability is obvious.

It nonetheless serves a valuable purpose where there are gifts among other relatives, such as cousins.

Note that the law always considers spouses and former spouses to be in the same generation as the older of the two, regardless of any age difference. So, to use a famous example, Anna Nicole Smith would have been considered of the same generation as her husband, Howard Marshall. The 62-year age difference is irrelevant.

In addition, individuals that are predeceased by their parents are considered to be members of their parents’ generation for purposes of the tax. This is because the purpose of the tax is to prevent avoidance of the estate tax at each generation. Its purpose would therefore not be served by taxing a transfer to a grandchild whose parents are deceased.

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Other Relatives and Unrelated Individuals

The generation-skipping transfer tax can apply even where the transferor and the transferee are not related. In those cases, a skip person is any transferee who is more than 37.5 years younger than the transferor.

As with the former test, the law considers married couples to belong to the same generation. Also as with the former text, those with predeceased parents are considered members of their parents’ generation.

The generation-skipping transfer tax can seem quite complex, and it can be. Therefore, it is important to plan with a competent attorney or tax professional if you are considering making any large gifts or bequeaths to your grandchildren or another skip person.

*For more detailed information, please see my book, *The Simple Guide to Estate Planning: A Look at Wills, Trusts, and Taxes.

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See Also:

Generation-Skipping Transfer Tax

The Federal Estate Tax