Non skip person

A "non skip person" is a key term within the realm of Estate Planning and U.S. federal Tax Law, specifically pertaining to the Generation-Skipping Transfer Tax (GSTT). In simple terms, a non skip person is any individual or entity who is not classified as a skip person for GSTT purposes. This classification is crucial for determining whether a transfer of wealth, either during one's lifetime or at death, is subject to this additional federal tax designed to prevent the avoidance of Estate Tax across generations. The Internal Revenue Service (IRS) defines a non skip person as any donee who does not meet the criteria of a skip person.³⁷

History and Origin

The concept of a non skip person arose with the introduction of the Generation-Skipping Transfer Tax (GSTT) by the Tax Reform Act of 1976. Prior to this legislation, wealthy individuals could establish trusts designed to benefit multiple generations, effectively bypassing Gift Tax and estate taxes as wealth passed down without being taxed at each generational level.³⁶,³⁵ This strategy allowed for substantial wealth preservation across families, leading to concerns about tax avoidance.³⁴

Congress enacted the GSTT to close this perceived loophole and ensure that significant intergenerational wealth transfers were subject to a tax similar to what would have been imposed if the assets had passed through each successive generation.³³,³² The tax was designed to be in addition to any applicable gift or estate taxes.³¹ The legislative history of federal transfer taxes, including the GSTT, reflects a continuous effort to balance revenue generation with concerns about wealth concentration and fairness in the tax system.³⁰,²⁹ The initial 1976 GSTT applied primarily to multi-generational trusts, but it was expanded in 1986 to cover single-generation gifts and broader trust structures.²⁸

Key Takeaways

A non skip person is a recipient of property who is not subject to the Generation-Skipping Transfer Tax (GSTT) for that specific transfer.
Generally, a non skip person is a beneficiary in the same generation as the transferor (e.g., a spouse or sibling) or one generation younger (e.g., a child or niece/nephew).
The classification as a non skip person is critical in Succession Planning to determine if a transfer is a "direct skip," "taxable distribution," or "taxable termination."
Transfers to non skip persons are typically subject to gift or estate taxes but are not additionally subject to the GSTT.
Understanding the definition of a non skip person helps grantors and their Executor or Fiduciary Duty holders structure their Will and Trust arrangements to potentially minimize overall transfer taxes within legal frameworks.

Interpreting the Non Skip Person

Interpreting the concept of a non skip person is fundamental in navigating the complexities of the Generation-Skipping Transfer Tax. The IRS generally defines a non skip person as anyone who is not explicitly categorized as a skip person.²⁷ This definition primarily hinges on generational assignment.

For tax purposes, generations are typically defined as follows:

An individual born within 12.5 years of the transferor is considered to be in the same generation.
An individual born more than 12.5 years but not more than 37.5 years after the transferor is assigned to the next generation.
A non-family member is generally a non skip person if they are less than 37.5 years younger than the transferor.²⁶

The significance of a non skip person lies in the fact that transfers to them are not direct skips and therefore do not immediately trigger the GSTT. For example, a gift from a parent to their child would be a transfer to a non skip person. However, if that child subsequently transfers the property to their own child (the original grantor's grandchild), that second transfer might then be subject to gift or estate tax, but the GSTT would apply only if the grandchild was a skip person to the child (the intermediate transferor). The GSTT is designed to catch transfers that "skip" a generation for tax purposes. If an intermediate generation (Beneficiary who is a non skip person) is alive and receives the property (or holds an interest in a trust), the GSTT generally does not apply to the initial transfer to that non skip person.

Hypothetical Example

Consider an individual, Sarah, who is planning her Intergenerational Wealth Transfer strategies.

Sarah has a daughter, Emily, and a granddaughter, Chloe (Emily's daughter).

Transfer to a Non Skip Person: Sarah decides to gift $2 million to her daughter, Emily. Since Emily is one generation younger than Sarah, Emily is considered a non skip person with respect to Sarah. This transfer would be subject to federal gift tax if it exceeds Sarah's Annual Exclusion for gifts and her remaining lifetime Unified Credit, but it would not be subject to the Generation-Skipping Transfer Tax.
Subsequent Transfer: Later, Emily, as the new Grantor, decides to gift $1 million to her own daughter, Chloe. From Emily's perspective, Chloe is her child, which means Chloe is a non skip person with respect to Emily. This transfer would be subject to Emily's gift tax exclusions and lifetime exemption but again, no GSTT.
Direct Skip (Contrast): If Sarah had instead directly gifted $2 million to her granddaughter, Chloe, bypassing Emily, Chloe would be two generations younger than Sarah, classifying her as a skip person. In this scenario, the transfer would be subject to both gift tax and the Generation-Skipping Transfer Tax, unless covered by Sarah's lifetime GST Tax Exemption.

This example illustrates how the presence of a non skip person in the direct line of a transfer can prevent the immediate application of the GSTT.

Practical Applications

The concept of a non skip person has several practical applications in financial and estate planning:

Estate Tax Planning: Recognizing who is a non skip person allows individuals to structure their bequests and gifts in a manner that subjects them to only one level of transfer taxation (gift or estate tax), rather than both gift/estate tax and the GSTT. Transfers to non skip persons avoid the additional layer of GSTT that applies to transfers spanning two or more generations.
Trust Design: When establishing trusts, identifying skip and non skip persons helps determine how and when the GSTT might apply to distributions or terminations of the trust. Trusts can be designed with non skip beneficiaries holding interests to defer or avoid GSTT, at least initially. For trusts with both non-skip and skip persons, the tax is imposed on distributions to skip persons or when all non-skip persons are no longer beneficiaries.²⁵
Gift Strategies: Understanding the non skip person definition is essential for optimizing lifetime gifting strategies. Gifts to non skip persons are generally reported on Part 1 of Schedule A of IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return, indicating they are subject to gift tax but not GSTT.²⁴ Conversely, gifts to skip persons, known as "direct skips," are reported on Part 2 of Schedule A and are subject to both.²³,²² The IRS provides detailed instructions for Form 709 to guide taxpayers in properly reporting these transfers.²¹,²⁰
Compliance: Correctly identifying non skip persons is vital for accurate tax reporting and compliance with IRS regulations concerning the Generation-Skipping Transfer Tax. Mistakes in classification can lead to penalties or missed opportunities for tax efficiency.

Limitations and Criticisms

While the distinction between a skip person and a non skip person is critical for applying the Generation-Skipping Transfer Tax, the overall GSTT framework, including these definitions, faces certain limitations and criticisms:

Complexity: The rules surrounding generational assignments, interests in trusts, and the various types of generation-skipping transfers (direct skips, taxable distributions, and taxable terminations) are highly complex. This complexity can make it challenging for individuals and even some legal and financial professionals to accurately navigate, leading to potential errors or missed planning opportunities.¹⁹
Dynasty Trusts: Despite the GSTT's intent to prevent multi-generational tax avoidance, the tax system still allows for the creation of "dynasty trusts" that, with careful planning and utilization of the lifetime GST exemption, can allow substantial wealth to grow and be passed down through many generations with minimal or no federal gift, estate, or GST tax consequences for extended periods.¹⁸,¹⁷,¹⁶ This outcome somewhat undermines the original purpose of the GSTT.
High Exemption Amounts: The substantial lifetime GST exemption amount (which is linked to the estate and gift tax exemption) means that the GSTT primarily affects only the very wealthiest individuals. For example, in 2025, the exemption is set at $13.99 million per person.¹⁵,¹⁴ This limits the tax's broad impact and leads to criticism that it does not effectively address broader wealth inequality, as argued by policy centers like the Tax Policy Center.¹³,¹²
Unintended Consequences: Some critics argue that the complexity of the GSTT can lead to unintended consequences, where simpler estate plans might inadvertently trigger the tax due to a misinterpretation of beneficiary relationships or trust structures.

Non skip person vs. Skip person

The fundamental difference between a non skip person and a Skip person lies in their generational relationship to the transferor for the purpose of the Generation-Skipping Transfer Tax (GSTT). This distinction is paramount in determining whether a transfer of wealth is subject to this additional federal tax.

Non Skip Person: A non skip person is any individual who is not classified as a skip person. Generally, this includes the transferor's spouse, siblings, children, nieces, nephews, or any unrelated individual who is less than 37.5 years younger than the transferor. Transfers to a non skip person are subject to regular gift or estate taxes, but not the additional GSTT.
Skip Person: A skip person is an individual who is two or more generations younger than the transferor. This typically includes grandchildren, great-grandchildren, or grandnieces/grandnephews. An unrelated individual who is 37.5 years or more younger than the transferor is also considered a skip person.¹¹,¹⁰ A trust can also be considered a skip person if all its beneficiaries are skip persons, or if there are no interests held by a non skip person and all future distributions can only be made to skip persons.⁹,⁸ Transfers directly to a skip person are generally subject to both the gift/estate tax and the GSTT, unless covered by the transferor's lifetime GST exemption.

Confusion often arises when a child (who would normally be a non skip person) predeceases their parent (the transferor). In such a case, under a specific rule known as the "predeceased ancestor exception," the deceased child's children (the transferor's grandchildren) essentially "move up a generation" for GSTT purposes. This means a direct transfer to these grandchildren would then be treated as if it were a transfer to a non skip person, thereby avoiding the GSTT.⁷,⁶

FAQs

What is the primary purpose of defining a non skip person?

The primary purpose of defining a non skip person is to identify beneficiaries who, when receiving a transfer of wealth, will not trigger the additional Generation-Skipping Transfer Tax (GSTT). Transfers to non skip persons are generally only subject to the standard gift or estate taxes.

Is a child always a non skip person?

Generally, a child is a non skip person with respect to their parent. However, if the child predeceases the parent, and the parent then transfers assets directly to the grandchild, the grandchild may be reclassified as a non skip person for GSTT purposes under the "predeceased ancestor exception."⁵

Does the Generation-Skipping Transfer Tax apply to transfers to a non skip person?

No, the Generation-Skipping Transfer Tax (GSTT) does not apply to direct transfers made to a non skip person. Such transfers are typically subject only to the federal gift tax if made during life, or the estate tax if made at death.⁴ The GSTT is designed to apply to transfers that bypass a generation that would otherwise be subject to transfer taxes.

How does the age difference affect the non skip person classification?

For unrelated individuals, the generational assignment depends on the age difference from the transferor. An unrelated individual is generally considered a non skip person if they are less than 37.5 years younger than the transferor. If they are 37.5 years or more younger, they are typically classified as a skip person.³,²

Why is it important for estate planning to distinguish between skip and non skip persons?

Distinguishing between skip and non skip persons is crucial for effective Financial Planning and Estate Planning because it helps individuals and their advisors determine whether a transfer will incur the Generation-Skipping Transfer Tax in addition to the gift or estate tax. Understanding this distinction allows for strategic decisions that may help optimize the transfer of wealth and maximize the amount received by heirs.¹