Is a grandchild a skip person if the grandchild's parent has died?
Key takeaway
No, if the grandchild’s parent who is the transferor’s, spouse’s, or former spouse’s child is deceased when the transfer first becomes subject to estate or gift tax, the grandchild is assigned to the child’s generation and is not a skip person for that transfer.
Start your review with three facts: the family relationship, the parent’s death, and the transfer’s timing. Bring a family tree and a transfer timeline to your adviser.
When the parent briefly survives the transferor
For a transfer occurring because of the transferor’s death, a parent who dies no later than 90 days afterward is treated as having predeceased the transferor for GST generation assignment.
This rule concerns transfers at death. It does not give a parent 90 days after a lifetime gift to qualify as predeceased. See the instructions in Sources for the rule’s effective date.
A trust needs its own review
A trust is a skip person if all interests in the transferred property are held by skip persons. It also qualifies if nobody holds an interest and future distributions or terminations can be made only to skip persons.
For this test, an individual holds an interest through a present right to receive income or principal, or eligibility as a permissible current recipient of either. Apply the generation adjustment before testing each individual’s skip person status.
Bring the trust document and beneficiary information to the review, alongside your family timeline.
Two related terms
Skip person: An individual assigned two or more generations below the transferor after applying any qualifying adjustment for a deceased parent. Certain trusts also qualify under the interests and distributions test described above.
Direct skip: A transfer subject to estate or gift tax of an interest in property to a skip person.
Frequently asked questions
Does the adjustment also affect the grandchild’s children?
Yes, if the grandchild qualifies for the deceased parent adjustment, the same generation assignment rules extend to the grandchild’s descendants. The grandchild’s children are treated as grandchildren rather than great grandchildren.
The adjustment does not automatically make every further descendant a nonskip person.
Can the adjustment carry through to later transfers from a trust?
Yes, if the transfer into the trust would have been a direct skip except for the generation assignment rule. The rule also applies to transfers from the trust attributable to that property.
Can GST trust rules apply without an explicit trust instrument?
Yes, an arrangement other than an estate is included in the GST definition of a trust if it has substantially the same effect as a trust. Examples include life estates with remainders and insurance and annuity contracts.
Sources
- 26 U.S.C. § 2651(e): Generation assignment when a parent is deceased. Supports the opening answer and its family relationship and timing conditions.
- IRS Instructions for Form 706: Generation assignment. Supports the rule for a parent dying no later than 90 days after a transfer occurring by reason of the transferor’s death.
- IRS Instructions for Form 709: Generation assignment and trusts. Supports the descendant adjustment, trust carryover, trust interests test and expanded trust definition. See the instructions for the rule’s effective date.
- 26 U.S.C. § 2613: Skip person definition. Supports the individual generation test and the separate trust test.
- 26 U.S.C. § 2612(c)(1): Direct skip definition. Supports the direct skip term.