Generation-Skipping Transfers after the Tax Reform Act of 1976

Abstract

Up until 1976 the federal estate tax did not apply to an interest expiring upon the death of a party1 that was created by someone (hereinafter referred to as the grantor2) other than the decedent,3 even though upon such termination the power or the enjoyment of the property passed to another.4 The phenomenon known as a generation-skipping transfer is a transfer from the grantor to the persons owning the interests following that of the expired interest. A trust for the benefit of the grantor's child for life with remainder to the grantor's grandchildren is the prototype of a generation-skipping transfer: upon the child's death nothing was subject to federal estate tax. The theory behind such exclusion is the property-law notion that the interest of the child (the skipped-generation) does not pass to the successor in interest from him but rather from the grantor.5