At the federal level, wealth transfers are subject to three separate, but overlapping, taxes: (1) the federal gift tax; (2) the federal estate tax; and (3) the federal generation-skipping transfer tax. Each of these wealth transfer taxes must be considered whenever one person transfers cash or other property to another person, during lifetime or at death, without receiving full and adequate consideration (i.e., a gift or inheritance). This article provides a brief overview of the generation-skipping transfer (GST) tax and a discussion of planning that may be used to avoid or lessen its impact.
Note that some states also impose state-level wealth transfer taxes, in addition to any federal wealth transfer taxes that may apply to a transfer. Nebraska, for example, levies an inheritance tax at death which is calculated according to the amount received by a beneficiary and the beneficiary’s relationship to the decedent. For additional information about Nebraska’s inheritance tax, please refer to the Tax Planning Newsletter article titled “The Nuts and Bolts of Nebraska’s Inheritance Tax,” which is available on McGrath North’s website.