What is a generation-skipping transfer tax?
A generation-skipping transfer tax is a type of tax imposed by the federal government and some states on transfers of property that skip a generation (from grandparent to grandchild, for example). In Indiana, the generation-skipping transfer tax is imposed when property is transferred to or for the benefit of a grandchild or any skip person which is defined as a “natural person who is two or more generations below the transferor”. The transferor must pay a tax on the transfer of property to the skip person that is equal to either the federal generation-skipping transfer tax or the state generation-skipping transfer tax, whichever is greater. The goal of the tax is to reduce the amount of wealth that is passed down from generation to generation without being taxed. All transfers of property to or for the benefit of a grandchild or skip person are subject to the tax unless they are specifically exempt by law such as certain trusts, family partnerships, and charitable gifts. The burden of paying the tax and filing the associated tax returns falls on the transferor and must be done in a timely manner. Failure to pay or file the required documents on time can result in costly penalties and interest charges.
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