Understanding Indirect Skip (Tax): Legal Insights and Implications
Definition & Meaning
An indirect skip (tax) refers to a type of transfer in estate planning where property is passed to a skip person through intermediate beneficiaries. A skip person is someone who is two or more generations younger than the transferor, the person giving the gift. Indirect skips typically occur in situations involving trusts or estates, where the transfer to the skip person happens after the death of an intermediate beneficiary, often a non-skip person, such as a child of the transferor.
Legal Use & context
This term is primarily used in estate planning and tax law. It is relevant in contexts involving generation-skipping transfers, which can be subject to specific tax implications under federal law. Legal practitioners often utilize this concept when advising clients on how to structure their estates to minimize tax liabilities. Users can manage some aspects of this process using legal templates available through services like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A grandmother sets up a trust for her son, providing him with income during his lifetime. Upon the son's death, the remaining assets in the trust will pass to his daughter (the granddaughter of the grandmother), making this an indirect skip.
Example 2: A father creates a trust that benefits his child until the child passes away, at which point the assets are transferred to the child's children (the grandchildren of the father). This scenario illustrates an indirect skip.
Relevant laws & statutes
The Generation-Skipping Transfer Tax is governed by the Internal Revenue Code, specifically under Section 2601. This section outlines the conditions under which the tax applies and the exemptions available for transfers.