Generation-Skipping Transfer Tax (GSTT)
Candlefocus EditorWhen a property or asset is gifted or inherited by a beneficiary, the GSTT will apply if the beneficiary is 37 ½ years or more younger than the donor, and the amount exceeds the current exemption amount ($12.06 million per individual for 2022 and $12.92 million for 2023). This tax rate is a flat 40%, and anyone found guilty of attempting to avoid the GSTT tax is subject to penalties and interest.
Those who are not familiar with the current wealth taxes and laws of the government might wonder why the GSTT is necessary in the first place. There are several benefits to this tax, the most important being that it helps to promote the fairness and redistribution of wealth throughout the nation. By levying a tax on gifts and inheritance that are given to much younger generations and those with a lower annual income, the amount of wealth inequality and the number of high net worth individuals in the country can be reduced.
For those affected by the GSTT, there are several ways to pay the tax and should be paid in a timely manner. The GSTT can be paid via cash or it can be taken directly from the gifted property as a tax in kind. Additionally, there are several exemptions and credits that are available in certain situations such as those who are disabled or are giving small or token gifts.
In closing, the Generation-Skipping Transfer Tax is a tax levied by the federal government to foster the fairness and redistribute of wealth throughout the United States. It applies when a property or asset is gifted or inherited by a beneficiary, who is 37 ½ years or more younger than the donor, and the amount exceeds the current exemption amount. It is important for those who will owe this tax to pay it in a timely manner, or face the consequences of late payment.