How is a skip person defined for the generation-skipping transfer tax?

A skip person, in the context of the generation-skipping transfer tax, is defined as someone who is two or more generations younger than the transferor. This definition is pivotal for understanding how transfer taxes apply when wealth is passed on in a manner that skips generations, targeting beneficiaries such as grandchildren or even great-grandchildren.

The generation-skipping transfer tax is designed to prevent individuals from avoiding estate and gift taxes by transferring assets to younger generations rather than heirs from the immediate next generation. By defining a skip person as someone who is two or more generations younger, the tax law specifically addresses scenarios where the transferor is trying to bypass the tax implications associated with direct transfers to their children, thereby affecting the tax responsibilities when wealth moves down the family line.

Understanding this definition is crucial for financial professionals and clients alike, as it impacts estate planning strategies and the associated tax consequences. This knowledge helps in structuring transfers in a manner compliant with the tax code while considering the financial legacy one wishes to leave behind for future generations.