As the administrator or an estate or trust, be aware of the gift tax and the generation-skipping transfer tax. Large transfers made during lifetime, may be subject to the gift tax. To pay the gift tax, file Form 709. The generation-skipping transfer tax (GST) applies when property moves from one generation to another, skipping intermediate generations along the way. To pay the GST, file either Form 709 or Form 706.
Estate and trust gift tax
Large transfers made during lifetime (what a way to say “a gift”) may be subject to the gift tax, one of the group of transfer taxes that also features the estate tax and the generation-skipping transfer tax. If transfers are made into a trust during the grantor’s lifetime, those transfers may be subject to the gift tax and filing Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Generation-skipping transfer tax
The generation-skipping transfer tax (GST) is assessed when property moves from one generation to another, skipping intermediate generations along the way.
Property that goes from a grandparent (or grandparent’s estate) to a grandchild (or in trust for the benefit of a grandchild) is subject to this tax, provided that the grandchild’s parent is still alive at the time the transfer is made.
Property transferred between unrelated people who are more than 37 1/2 years apart in age is also subject to the generation-skipping transfer tax.
Unlike the estate tax, which is only assessed after the decedent’s death, and the gift tax, which only comes into play while the donor is still alive, the generation-skipping transfer tax may be assessed either during the donor’s lifetime or after his or her death.
The generation-skipping transfer tax is assessed in addition to, not instead of, the estate or gift tax. It generally equals the amount of transfer tax that would’ve been generated had the property made all the generational steps, not just the skipping ones.
Depending on whether this tax is being assessed for a gift made during the donor’s lifetime or for a bequest or devise made after death, the GST is calculated either on Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return or Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return.