Lesson 9: Generation-Skipping Transfers Flashcards
All of the following are subject to generation-skipping transfer tax (GSTT) EXCEPT
A) taxable terminations.
B) taxable distributions.
C) direct skips.
D) indirect skips.
The correct answer is (D).
There is no such thing as indirect skips.
The generation-skipping transfer tax is imposed
A) as an alternative to the estate tax.
B) and is deductible from any gift tax.
C) in addition to gift and estate taxes.
D) as a progressive tax like the estate tax.
The correct answer is (C).
The GSTT is in addition to gift and estate tax and applies to transferees (donees) who are at least two generations younger than the transferor (donor).
For the year 2021, the GSTT exemption is
A) $11,700,000 per donor.
B) $11,700,000 per donee.
C) deducted from the gift tax exemption.
D) separated from the estate exemption and therefore additive.
The correct answer is (A).
All other options are incorrect.
Marcelle, aged 48, wants to provide for the financial security of her friend Jamie and other unrelated friends. She establishes a trust. Jamie, aged 70, will receive income from the trust for her life. Upon Jamie’s death, Darren, another friend who is currently 50, will receive income for his lifetime. Upon his death, the remainder interest will be divided equally between Marcelle’s nephews, 8-year-old Carl (age 8) and 6-year-old Joseph. How many times will this trust be subject to a GSTT?
A) None. No GSTT will be assessed.
B) One.
C) Two.
D) Three.
The correct answer is (A).
In this case, the unrelated person must be 37½ years younger than the transferor to be a skip person. The trust will not be subject to the GSTT when paid out to Carl (40 years younger) and Joseph (42 years younger) because they are her nephews.
Which of the following types of transfers are subject to GSTT?
- Indirect skips.
- Terminations of trusts with skipped and non skipped persons leaving only skipped persons.
- Distributions to skipped persons.
A) 1 only.
B) 1 and 2.
C) 2 and 3.
D) 1, 2, and 3.
The correct answer is (C).
Indirect skips are not subject to GSTT.
Which of the following gifts made by Tristan, age 49, is subject to the generation-skipping transfer tax?
A) $15,000 to his grandson.
B) $20,000 to his niece, age 6.
C) Payment of medical school tuition of $50,000 for the granddaughter of Joe, Tristan’s best friend.
D) $20,000 to the daughter (age 6) of Tristan’s former college roommate.
The correct answer is (D).
Option A is exempted by the annual exclusion (2021 limit). Option B, a niece, is not a skip person. Option C is a qualified transfer not subject to GST. Option d is to a skip person because a nonlineal descendant is a skip person if more than 37½ years younger than the transferor.
For the year 2021, $11,700,000 is the:
A) Aggregate lifetime exemption from gift tax for annual exclusion of gifts.
B) Unified credit shelter exemption equivalent.
C) The GSTT aggregate lifetime exemption.
D) Maximum marital deduction for non-QTIP transfers.
The correct answer is (C).
The GSTT aggregate lifetime exemption for 2021. The amount is indexed.
Who among the following would be skip persons for purposes of the GSTT? Phil is the transferor and is 82 years old.
- John, the grandson of Phil whose mother, Donna, is living but whose father, Fred, is deceased (Fred is Phil’s son).
- Mary is the great-grandchild of Phil. Both Mary’s parents and grandparents are living.
- Paige is the 21-year-old wife of Phil’s second son, Mike, age 65.
A) Mary only.
B) John and Mary.
C) Mary and Paige.
D) John, Mary, and Paige.
The correct answer is (A).
John is not s skip person because of the predeceased parent rule. Paige is not a skip person because she is not in a skipped generation because she is a married relation (married to Phil’s son).
Which of the following statements is/are correct regarding the GSTT for the year 2021?
- The annual exclusion is allowed.
- Gift splitting is permitted.
- Qualified transfers are excluded from GSTT.
- Each person is allowed a $11,700,000 lifetime exemption against all skips.
A) 1 and 4.
B) 1, 2, and 3.
C) 1, 2, and 4.
D) 1, 2, 3, and 4.
The correct answer is (D).
All statements are correct. In addition, there is the predeceased parent rule, which allows a generation to be skipped from grandparent to grandchild if the parent is deceased. The exception also extends to collateral heirs if a decedent has no living lineal descendants.
Harold (age 63) established a trust and named his wife, Betty (age 40) as income beneficiary for 20 years. After 20 years, Harold’s son, Nelson (age 30) and nephew, Ben (age 22) are to receive lifetime income interests. After the death of both Nelson and Ben, the remainder passes equally to Harold’s granddaughter Amy (age 20) and great-grandson, Mason (age 1). Assume Nelson died 22 years after the trust was established, and Ben died 34 years after the trust was established. Assuming both Amy and Mason were alive when Ben died, how many times is the generation-skipping transfer tax levied?
A) Never.
B) Once.
C) Twice.
D) Three times.
The correct answer is (B).
The GSTT is only levied once at Ben’s death (taxable termination).
