What is a generation-skipping transfer tax?
A generation-skipping transfer tax (GSTT) is a federal tax imposed on transfers of property or money made by an individual to someone who is two or more generations younger than them. This tax was implemented to stop individuals from skirting estate tax laws by leaving their property or money directly to grandchildren or more distant relatives instead of going through the process of estate taxation. In North Dakota, the GSTT is imposed at the federal level and is currently at 40%. This means that an individual who transfers property or money to someone two generations younger than them is required to pay 40% of the total value to the federal government as a tax. This can be both a gift or an inheritance, and the liability for this tax falls on the donor, not the recipient. The generation-skipping transfer tax is a relatively new imposition, having only been introduced as part of the Tax Reform Act of 1976. The impetus behind the tax was to prevent high-income individuals from avoiding paying estate taxes by simply transferring money or property directly to their grandchildren. This type of tax might also be applicable in certain cases involving trusts, as any beneficiary receiving money or property from the trust may be required to pay the GSTT.
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