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§ 8.5 GENERATION-SKIPPING TRANSFER TAXA transfer tax is imposed on every generation-skipping transfer. 152 The taxrate is a flat amount equal to the maximum unified estate and gift tax rate. 153 Thegeneration-skipping transfer (GST) tax rate is 55 percent. The tax itself, althougha transfer tax, is not unified with the estate and gift tax. It is a separate tax ontransfers of property. The source for payment of the tax is the property subject tothe GST tax. 154The federal tax code provides rules for determining to which generation atransferor of a generation-skipping transfer belongs. 155 Generally, generationallevels are assigned based on lineal descent. Adopted persons, and personsrelated by half-blood, are treated as lineal descendants. A married individual isassigned to the same generational level as his or her spouse. Nonlineal descendantsare assigned to generations based on their age. An individual born within12½ years of a transferor is assigned to the same generation as the transferor. Anindividual between 12½ and 37½ years younger than a transferor is assigned tothe next lower generational level. New generational levels are created for eachadditional 25-year difference.A generation-skipping transfer is defined as any:• Taxable distribution 156• Taxable termination 157• Direct skip 1581st GenerationGrantor2nd GenerationChildren3rd GenerationGrandchildrenIncomeIncome for life(no estate tax)Limited Power of Appointment-invade principal under anascertainable standard,or-discretion within 5 and 5 powersPrincipalWealth(By-pass)Principal (one level ofestate tax)Wealth152 IRC § 2601.153 IRC § 2602.154 IRC § 2603.155 IRC § 2651.156 IRC § 2611(a)(1).157 IRC § 2611(a)(2).158 IRC § 2611(a)(3). 247