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Direct Skip

A direct skip is a tax term used to refer to a transfer of property that directly skips generation. This can be in a trust, will, or any other property transfer type used of an estate. More commonly, property is transferred from generation to generation, and therefore only subject to inheritance/estate taxes. The use of a direct skip, however, causes the property to incur generation skipping taxes. This is because, for tax purposes, rather than the estate having gone through two round of estate taxes, it would instead skip a round, only incurring estate taxes once. In a direct skip, the taxable amount of property that will be taxed is equal to its fair market value at the time of transfer. If the transfer was given in formal of an gift, the generation skipping tax will be placed on top of the gift tax. Generation skipping taxes can also apply to other types of transfers that indirectly skip generations, such as when a child (who is primary beneficiary) dies before the original property owner, automatically transferring the property down the next generation.

Fast Facts

  • a taxable determination and taxable distribution are also subject to generation skipping taxes
  • generation skipping transfer may be called GSTs

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