Course:  Estate Planning
Lesson 7: Transfer Taxation IV – Generation-Skipping Transfers

Student Question:

Regarding the example below, would the death of the father Stephen not move Andrew one step up, making him only one generation below Mrs. Jones? Would this not remove the Generation-Skipping Transfer Tax?

EXAMPLE:

Upon her death, Mrs. Jones left her estate in trust to provide income for life to her son (a non-skip person) Stephen. Upon Stephen’s death, the trust continues for the life of the grandson (a skip person) Andrew. Upon Stephen’s death, a taxable termination has occurred because the current beneficiary will then be a skip person.

Brad


Instructor Response:

Hi Brad-

Great question.  The determination of skip status is made when the trust is funded rather than when Stephen dies.  Andrew remains a skip person even after Stephen’s death because an irrevocable trust owns the assets.  This is an all too common estate planning error when trusts are drafted by inexperienced attorneys.

Hope that helps.  Have a great day!

Dan