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Generation Skipping Tax

Section 2601 imposes a generation-skipping transfer tax on: 

bullet(1) the termination of an interest in property held in trust that is then held for or distributed to a skip person; 
bullet(2) transfers under trusts with beneficiaries of more than one generation below the transferor (one who makes a transfer); and 
bullet(3) direct transfers to beneficiaries of more than one generation below the transferor. 

A generation-skipping transfer (GST) is defined as a transfer of assets more than a single generation below the transferor (e.g., from grandmother to grandchild). This tax is imposed (with certain exceptions) when any of the three following events occur: a taxable termination, a taxable distribution (this includes a distribution of income), and a direct skip.