A more thorough explanation:

Definition: Generation skipping refers to gifts made by a grandparent to a grandchild, skipping the grandchild's parent. This is usually done through a trust to avoid or defer federal gift or estate taxes. However, it is now subject to a generation skipping tax, and if made directly without a trust, the gift is as taxable as any large gift. Despite this, a grandparent can still give or leave gifts under $10,000 a year to a grandchild without a gift tax.

Example: John wants to leave his estate to his grandchildren, but he wants to avoid paying estate taxes. He sets up a generation skipping trust, which allows him to leave his assets to his grandchildren without paying taxes. However, the trust is subject to a generation skipping tax, which means that John's grandchildren will have to pay taxes on the assets they inherit.

Explanation: This example illustrates how a grandparent can use a generation skipping trust to leave assets to their grandchildren without paying estate taxes. However, the trust is subject to a generation skipping tax, which means that the grandchildren will have to pay taxes on the assets they inherit.