887 / How are individuals assigned to generations for purposes of the GST tax?

An individual (and his spouse or former spouse) who is a lineal descendant of a grandparent of the transferor (or the transferor’s spouse) is assigned to that generation which results from comparing the number of generations between the grandparent and such individual with the number of generations between the grandparent and the transferor (or the transferor’s spouse). A relationship by legal adoption is treated as a relationship by blood, and a relationship by the half-blood is treated as a relationship of the whole blood.¹

A person who could be assigned to more than one generation is assigned to the youngest generation. However, regulations provide that adopted individuals will be treated as one generation younger than the adoptive parent where: (1) a transfer is made to the adopted individual from the adoptive parent, the spouse or former spouse of the adoptive parent, or a lineal descendant of a grandparent of the adoptive parent; (2) the adopted individual is a descendant of the adoptive parent (or the spouse or former spouse of the adoptive parent); (3) the adopted individual is under age 18 at the time of adoption; and (4) the adoption is not primarily for the purpose of avoiding GST tax.²

However, with respect to terminations, distributions, and transfers occurring after 1997, where an individual’s parent is dead at the time of a transfer subject to gift or estate tax upon which the individual’s interest is established or derived, such individual will be treated as being one generation below the lower of (1) the transferor’s generation, or (2) the generation of the youngest living ancestor of the individual who is also a descendant of the parents of the transferor or the transferor’s spouse (or former spouse). This predeceased parent rule applies to collateral relatives (e.g., nieces and nephews) only if there are no living lineal descendants of the transferor at the time of the transfer.³ For a narrower predeceased parent rule that applied to direct skips before 1998, see Q 875.

Regulations make clear that if the generation-skipping property is subject to gift tax or estate tax on more than one occasion, the time for determining application of the predeceased parent rule is on the first of such occasions. In the case of a qualified terminable interest property (QTIP) marital deduction election, the time for determining application of the predeceased parent rule can essentially wait until the surviving spouse dies or makes a gift of the QTIP property. However, where a reverse QTIP election is made, application of the predeceased parent rule is made at the time of the first spouse’s death. Also, at times property may be transferred to a trust before the predeceased parent rule is applicable. Later, the predeceased parent rule applies to additional property transferred to the trust. The additional property is treated as being held in a separate trust for GST tax purposes. Each portion has, in effect, a separate transferor.⁴

An individual who cannot be assigned to a generation under the foregoing rules is assigned to a generation on the basis of his date of birth. An individual born not more than 12½ years after the date of birth of the transferor is assigned to the transferor’s generation. An individual born more than 12½ years but not more than 37½ years after the date of birth of the transferor is assigned to the first generation younger than the transferor. There are similar rules for a new generation every 25 years.⁵