Generation-Skipping: Brothers-In-Law, Sisters-In-Law, And Inheritance

The generation-skipping transfer tax (GSTT) is a type of federal transfer tax that is often overlooked and misunderstood. It is a complex tax that was created to prevent individuals from reducing their overall estate tax burden by transferring wealth directly to the next generation, thus skipping a generation. This practice was previously used to avoid estate taxes over several generations. The GSTT applies to transfers made to skip persons, who are individuals who are at least two generations below the transferor. While the GSTT typically applies to transfers from grandparents to grandchildren, it can also apply to transfers made to other family members, such as brothers-in-law and sisters-in-law, if they meet the age requirement of being at least 37.5 years younger than the donor.

Brothers/sisters-in-law are related by affinity, not blood

Brothers-in-law and sisters-in-law are related by affinity, not blood. In other words, they are related by marriage, not genetics. Affinity is a type of kinship created when someone gets married. It is the relationship each party in the marriage has to the family of the other party in the marriage.

The terms brother-in-law and sister-in-law each have two or three meanings. All authorities agree on the first two meanings, but there is some controversy about the third.

Your brother-in-law could be:

• The brother of your spouse.
• The husband of your sister.
• The husband of your spouse's brother. (This meaning is accepted by the American Heritage Dictionary, but not by all authorities.)

Similarly, your sister-in-law could be:

• The sister of your spouse.
• The wife of your brother.
• The wife of your spouse's sister. (This meaning is accepted by the American Heritage Dictionary, but not by all authorities.)

For example, let's say Al marries Betty, and Betty has a sister, Bonnie, who marries Calvin. In this case, Al and Calvin are brothers-in-law, and Betty and Bonnie are sisters-in-law.

The children of your siblings-in-law are called nieces and nephews. If necessary, you can specify whether they are nieces and nephews "by marriage", as opposed to "by blood" or "by adoption".

In some cultures, there are specific terms for the reciprocal relationship between a person's spouse and their sibling's spouse. In Indian English, for example, the wife of one's sibling-in-law is called a co-sister, and the husband of one's sibling-in-law is called a co-brother.

The children of brothers/sisters-in-law are called nieces and nephews

The children of brothers-in-law or sisters-in-law are called nieces and nephews. This is because the term 'brother-in-law' or 'sister-in-law' can refer to the spouse of one's sibling, or the sibling of one's spouse. In the latter case, the children of the brother-in-law or sister-in-law are the children of the spouse's sibling, and therefore the niece or nephew.

In the lineal kinship system used in the English-speaking world, a niece or nephew is the child of an individual's sibling or sibling-in-law. A niece is female and a nephew is male, and they would call their parents' siblings aunt or uncle. The gender-neutral term 'nibling' has been used in specialist literature to refer to nieces and nephews.

As aunt/uncle and niece/nephew are separated by one generation, they are an example of a second-degree relationship. Unless related by marriage, they are 25% or more related by blood if the aunt/uncle is a full sibling of one of the parents, or 12.5% if they are a half-sibling.

In some cultures and families, it is common to refer to cousins with one or more removals to a newer generation using some form of the word niece or nephew. For example, in old English, the son of one's sister was called a 'sister-son'.

In Islamic and Jewish law, sexual relations between brothers/sisters-in-law are prohibited as incestuous

In both Islamic and Jewish law, sexual relations between certain relatives are prohibited as incestuous. In Jewish law, the Torah and Leviticus outline forbidden incestuous relationships, which include sexual relations between a man and his brother's wife. An exception to this rule is yibbum, a form of levirate marriage in which a man is permitted and encouraged to marry his brother's widow, as specified by Deuteronomy 25:5–10. However, if either party refuses, they are required to perform halizah, a symbolic act of renunciation of their right to marry.

In Islamic law, brothers and sisters are considered relatives with whom ties must be upheld. While there are no explicit references to sexual relations between brothers or sisters-in-law, Islam commands that no harm should come to brothers and sisters in word or deed.

In both Islamic and Jewish traditions, the prohibition of incest is deeply rooted, and sexual relations between brothers and sisters-in-law would likely be considered a violation of these religious laws and cultural norms.

Generation-skipping transfer tax (GSTT) applies to gifts made to family members 37.5 years younger than the giver

The Generation-Skipping Transfer Tax (GSTT) is a federal tax on gifts or inheritances that applies when there is a transfer of property by gift or inheritance to a beneficiary (other than a spouse) who is at least 37.5 years younger than the donor. This tax was introduced to prevent wealthy individuals from avoiding estate taxes by skipping children in favour of grandchildren.

The GSTT is imposed only if the transfer avoids incurring a gift or estate tax at each generation level. The person giving the gift is referred to as the transferor, and the recipient is known as the skip person. While a skip person is often a grandchild, they do not have to be a family member. Any individual is eligible to be a skip person as long as they are at least 37.5 years younger than the transferor.

The GSTT is assessed when the gift or property transfer is made and can occur before or after the death of the transferor. The transferor can give the gift directly to the skip person while they are alive, and upon death, the transferor's will may stipulate that property is bequeathed to a skip person or that a trust is established from which distributions will be made.

The GSTT is triggered when a person gifts another person an asset but skips a generation in doing so. For example, a person could stipulate in their will that their assets will go to their grandchild, skipping their child (the grandchild's parent).

The GSTT is paid by either the grantor or the skipped beneficiary, depending on how the bequest is structured. The grantor typically pays the direct generation-skipping tax, while the skipped beneficiary pays the indirect generation-skipping tax.

The GSTT is a flat-rate tax of 40%, but most estates will never be subject to it due to the high threshold. For 2024, the federal estate, gift, and GSTT exemption is $13.61 million for each individual and $27.22 million for married couples. Only the value of an estate that exceeds this applicable exemption is subject to the estate tax at death or the GSTT. Thus, only aggregate gifts and bequests to a skip person exceeding $13.61 million for individuals and $27.22 million for married couples in 2024 would be subject to the 40% flat generation-skipping transfer tax.

GSTT was created to close a loophole that allowed wealthy individuals to avoid estate and gift taxes by making gifts or bequests to their grandchildren

The Generation-Skipping Transfer Tax (GSTT) was introduced in 1976 to prevent wealthy individuals from avoiding estate taxes by bypassing their children and making gifts or bequests directly to their grandchildren. This loophole allowed the wealthy to legally gift money and bequeath property to their grandchildren without paying federal estate taxes, which they would have had to pay if the bequest had been made to their children.

The GSTT is a federal tax that applies when there is a transfer of property by gift or inheritance to a beneficiary (other than a spouse) who is at least 37.5 years younger than the donor. This is known as a generation-skipping transfer (GST). The GSTT ensures that grandchildren receive the same amount as if the inheritance were coming from their parents, preventing families from avoiding estate tax for one or more generations.

The GSTT is imposed only if the transfer avoids incurring a gift or estate tax at each generation level. It is in addition to any other federal gift or estate tax that may be owed. The GSTT rate is a flat 40%.

The person giving the gift is referred to as the transferor, and the recipient is known as the skip person. While a grandchild is often used as a skip person, they do not have to be a family member. Any individual is eligible to receive a GST as long as they are at least 37.5 years younger than the transferor.

The GSTT can be triggered in three types of taxable events: direct skips, taxable distributions, and taxable terminations. Direct skips occur when assets are transferred from one individual to a skip person, either outright or in trust. The transferor or their estate is responsible for paying the GST tax for direct skips. Taxable distributions refer to any distribution of income or property from a trust to a skip person that is not otherwise subject to estate or gift tax. The recipient is responsible for paying the GST tax in this case. Taxable terminations involve the termination of an interest in property held in trust, such as due to the death of a beneficiary or the expiration of the trust term, with no other non-skip beneficiaries, and the trust assets are not included in the deceased beneficiary's estate. The trustee is responsible for paying the GSTT when the taxable termination occurs.

The GSTT exemption is very high, and most beneficiaries will avoid the tax because the estates they inherit will be worth less than the government-provided estate tax credit. For 2024, the federal estate, gift, and GSTT exemption is $13.61 million for each individual and $27.22 million for married couples. Only the value of an estate that exceeds this exemption is subject to the GSTT.

The GSTT can be complex, and proper planning may help maximize the amount transferred by taking advantage of exemptions.

Frequently asked questions