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Simple English definitions for legal terms
generation-skipping tax
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A quick definition of generation-skipping tax:
A generation-skipping tax is a type of tax that the government charges on money or property that is passed down to grandchildren or other people who are not directly related to the person who owned the money or property. It is a way for the government to collect money from people who try to avoid paying taxes by giving their money to their grandchildren instead of their children. Taxes are charges that the government collects from people to pay for things like schools, roads, and other public services.
A more thorough explanation:
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.