Skip Person
Overview
A skip person is a legal term used in estate planning and generation-skipping transfer (GST) tax law that refers to a beneficiary who is two or more generations younger than the transferor. This typically includes grandchildren, great-grandchildren, or unrelated individuals who are at least 37.5 years younger than the transferor.
Key Components and Understanding
Definition in Practice
- A skip person can be either:
- A natural person (individual) who is two or more generations below the transferor
- A trust where all beneficiaries are skip persons
- A trust where no person holds an immediate interest in the trust property
Generation Assignment Rules
-
Family Members
- Grandchildren are always skip persons to their grandparents
- Great-grandchildren are skip persons to their great-grandparents
- Children are never skip persons to their parents
-
Non-Family Members
- Must be at least 37.5 years younger than the transferor
- Age difference is the determining factor rather than familial relationship
Tax Implications
Generation-Skipping Transfer Tax
- Transfers to skip persons may trigger GST tax
- Current GST tax rate (2023) is 40%
- Lifetime exemption available (currently $12.92 million in 2023)
Planning Considerations
- GST Tax Planning
- Trust Structuring
- Exemption Allocation
Common Scenarios
Examples of Skip Person Transfers
-
Direct Transfers
- Grandmother gives property directly to grandchild
- Great-aunt gives assets to great-niece
-
Trust Arrangements
- Trust established for benefit of all grandchildren
- Dynasty trust benefiting multiple generations
FAQ Section
Q: Can a skip person ever be a child?
A: No, a child can never be a skip person to their parent, regardless of age difference.
Q: How does the 37.5-year rule apply?
A: For non-family members, if the beneficiary is 37.5 years or more younger than the transferor, they are considered a skip person.
Q: Can a trust be a skip person?
A: Yes, if all beneficiaries are skip persons or if no person holds an immediate interest in the trust property.
Q: How can one avoid GST tax?
A: Through careful planning, including:
- Using the GST tax exemption
- Annual exclusion gifts
- Direct payment of medical/educational expenses
Summary
Understanding the concept of a skip person is crucial for effective estate planning, particularly when dealing with multi-generational wealth transfers. It helps in:
- Proper tax planning
- Structuring inheritances
- Maximizing wealth preservation across generations
- Avoiding unexpected tax consequences
Note: Tax rates and exemption amounts are subject to change. Always consult with a qualified estate planning attorney for current information and specific advice.
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Related Terms
Here are some related terms that are relevant to the estate planning term "Skip Person":
Synonyms:
- Generation-skipping beneficiary
- Generational transfer
- Descendant
Antonyms:
- Direct heir
- Lineal descendant
- Immediate family member
Other Relevant Terms:
- Generation-Skipping Transfer (GST) Tax
- GST Exemption
- Dynasty Trust
- Grandchild
- Great-Grandchild
- Transferor
- Estate Planning
- Wealth Transfer
- Inheritance
- Tax Avoidance
- Beneficiary Designation
These terms are frequently used in conjunction with the concept of a "skip person" in the context of estate planning and intergenerational wealth transfers. Understanding these related terms can provide a more comprehensive understanding of the topic.
