The time when, and the amount upon which, the GSTT is imposed depend upon whether the generation skipping transfer is a direct skip, a taxable distribution, or a taxable termination. The GSTT liability is in addition to the gift tax or the estate tax that might also be payable by the transferor.

Direct Skip

A direct skip is a transfer to a skip person subject to gift tax or estate tax. A skip person is a person who is assigned to a generation that is two or more generations below the generation of the transferor. The most common example of a direct skip is an outright gift to a grandchild. If the transfer is a direct skip, the GSTT is imposed at the time of the transfer. If it is a lifetime gift, the tax is imposed when the gift is made — if it is a death transfer, at the time of the transferor's death.

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