What is a generation-skipping transfer tax?
A generation-skipping transfer tax (GSTT) is a type of tax imposed by the state of Washington on transfers of property that skip a generation. The tax is intended to prevent wealthy individuals from avoiding the estate tax by transferring their property directly to their grandchildren or other distant relatives. In Washington, the GSTT rate is equal to the highest rate of the estate tax; currently, this rate is 20%. To qualify for the GSTT, the property must be transferred to a “skip person”—i.e., someone who is two or more generations below the taxpayer. This can include a grandchild, great-grandchild, or more distant relative. The GSTT is paid by the transferor (the person transferring their property) unless some other agreement is made. A transferor is responsible for paying the GSTT even if they make the transfer before they die. In Washington, the GSTT applies to all transfers of real property, tangible personal property, and intangible property. Furthermore, the transfer must exceed the GSTT exemption amount, which is currently set at $5.49 million. It’s important to note that the GSTT can be quite complex, and it is best to consult with an experienced attorney or tax professional before making any transfers that may be subject to the GSTT.
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