When is GSTT levied?

The correct answer is that GSTT (Generation-Skipping Transfer Tax) is levied at the death of the second generation inheritor. This tax is relevant when assets are transferred to beneficiaries who are at least two generations younger than the transferor, thus skipping an immediate generation in the transfer process.

The timing of the tax is important because GSTT is designed to prevent the avoidance of estate and gift taxes that would typically apply if the assets were passed down directly through the immediate generation. By imposing the tax at the point when the second generation inheritor dies, it ensures that the federal government collects taxes on the wealth that could potentially benefit multiple generations without being taxed in each instance. This means the tax comes into play when the second generation's interest in the inherited wealth culminates, rather than at the initiation of the gift or transfer of assets.

In contrast, the tax is not levied at the time of gifting or at the death of the grantor since those events do not trigger the GSTT. It also does not occur at the time of the transfer of assets because the actual assessment is linked to the ultimate transfer to a second generation beneficiary. Understanding the timing and conditions under which GSTT is applied is crucial for effective estate planning, particularly