Generation skipping transfer tax is a levy on gift to persons two or more generations younger than the donor or transfers in favor of trust entities for the benefit of said descendants, such as grand children and great grand children and so on down the line. The generation skipping transfer tax makes good to the exchequer the loss of revenue from estate duty or gift tax at any generation level due to outright transfers or gifts to any transferee two or more generations below the transferor.
The purpose is to charge to tax transfers of property with each successive generation. This Act does not apply to transfers to spouses or children.
The first version of generation skipping transfer tax introduced in 1976 imposed a levy exactly equal to the gift tax or estate duty avoided.
Since this 1976 version posed many administrative problems the congress repealed the same in 1986 and put in place a new generation skipping transfer tax legislation. It taxes transfers in excess of the exemption limit stated below at a flat rate which can go maximum up to 45% at the current rates.
Every individual enjoys an exemption of $ 2, 00,000 for transfer of his properties to any descendant two or more generations below him. For a married couple this exemption goes up to $4, 00,000. The aforesaid exemption limit of $ 2, 00,000 is due to be enhanced to $3, 50,000 in 2009. This tax is due for repeal in 2010 but is going to be reinstated in 2011.
(More:http://www.yourdictionary.com/generation-skipping-transfer-tax)
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