What is a generation-skipping transfer tax?
A generation-skipping transfer tax is a federal estate tax that applies in addition to the traditional estate tax. It is applied to transfers of wealth from one generation to another that skip an entire generation. This tax was introduced to prevent wealthy individuals from avoiding estate taxes by transferring assets to grandchildren or great-grandchildren instead of to their children. In California, the generation-skipping transfer tax applies when a transfer of assets or property is made to someone other than a child or grandchild. A tax rate of 40% is applied to the transfer, which is in addition to the federal estate tax. Any assets that are transferred without paying the generation-skipping transfer tax can be subject to penalty or even seizure by the IRS. For example, if a California taxpayer transfers $500,000 to their grandchild, they must pay both the traditional estate tax as well as the generation-skipping transfer tax. If the taxpayer does not pay the required taxes, they could face penalties or the seizure of their assets by the IRS. Overall, the generation-skipping transfer tax is a federal estate tax applied to transfers of wealth in California that skip an entire generation. It helps to ensure that wealthy taxpayers do not avoid traditional estate taxes by transferring assets to grandchildren or great-grandchildren instead of to their children.
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