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Financial Word of the Week: Generation-skipping transfer tax

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Financial Word of the Week - Generation-skipping transfer tax

The generation-skipping transfer tax (GST tax) is a separate transfer tax that is imposed on certain transfers and may apply in addition to any gift or estate tax due. The purpose of the GST tax is to tax the transfer of assets passing to a person more than one generation beyond the donor (i.e., “skipping” a generation). This flat-rate tax is calculated at the maximum estate tax rate applicable at the time of the transfer. (In 2015, the maximum estate tax rate is 40 percent.) However, like the gift and estate tax, there are certain exemptions that may apply to help avoid or minimize the impact of the GST tax. For example, there is a lifetime exemption that allows you to transfer a certain dollar amount of assets without incurring this tax. In 2015, the exemption amount is $5,430,000. In addition, there is an annual exclusion available that currently allows for the transfer of $14,000 to any individual without the GST tax being imposed.

One of the keys to the GST tax rule is that it is designed to only tax certain transfers – those involving a transfer of assets to a person one or more generations down the line. For family members such as grandchildren, this is straightforward. For example, a gift from a grandparent to a grandchild would skip the donor’s child’s generation and would, absent an applicable exemption, be subject to the GST tax. However, for non-family members, whether a transfer skips a generation is not always as apparent. For gifts to unrelated individuals, the Internal Revenue Code deems a gift to someone more than 37 ½ years younger to have “skipped” a generation and is therefore subject to the GST tax.

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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.


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