Legal Definitions - generation-skipping tax

A generation-skipping tax is a type of tax that is imposed on transfers of property or assets to beneficiaries who are two or more generations younger than the person making the transfer. This tax is in addition to any other estate or gift taxes that may apply.

• Grandfather wants to leave his estate to his grandchildren instead of his children. He will have to pay a generation-skipping tax on the transfer.
• A wealthy individual wants to leave a large sum of money to a trust that will benefit their great-grandchildren. The transfer will be subject to a generation-skipping tax.

These examples illustrate how a generation-skipping tax applies to transfers of property or assets to beneficiaries who are more than one generation younger than the person making the transfer. The tax is designed to prevent wealthy individuals from avoiding estate and gift taxes by transferring assets to younger generations.