Understanding Direct Skips in Estate Planning

What does a direct skip refer to in legal terms?

• A. Transfer of assets to a charity
• B. Transfer of property that skips a generation
• C. Immediate inheritance after death
• D. Transfer of assets to a spouse

Answer: (B)

A direct skip refers to the transfer of property or assets directly to a person who is two or more generations younger than the transferor, thereby skipping the intermediate generation. This is often relevant in estate planning and taxation, particularly when considering the Generation-Skipping Transfer Tax (GSTT), which is designed to impose taxes on certain transfers that bypass generations. For example, this could occur when a grandparent leaves an inheritance directly to a grandchild without allocating assets to the parent (the intermediate generation). The other options present different types of asset transfers that do not specifically embody the concept of skipping a generation in the same way. Marketing transfers to a charity or a spouse do not involve skipping a generation, while immediate inheritance after death pertains to the timing of the transfer rather than the generational aspect of the transfer.

When it comes to estate planning, understanding the terminology can sometimes feel like learning a new language. One term that might have you scratching your head is “direct skip.” But don’t worry; we’ve all been there, and it’s easier than it sounds! So, let’s break it down, shall we?