Cannon Trust School Level II Practice Exam

Which statement best describes the rate at which the GST tax is applied?

Only at the highest estate tax rate applicable at the time. At varying, progressive rates according to the unified transfer tax rate schedule applicable at the time. Only at the lowest estate tax rate applicable at the time. Based on the size and nature of the transfer.

Correct Answer:

Only at the highest estate tax rate applicable at the time.

Explanation:

GST tax is charged at the top rate in effect for the estate/gift tax system. In practice, a generation-skipping transfer is taxed using the maximum rate that applies to the transfer year, applied to the taxable amount after any exemptions or credits. This means the rate doesn’t vary with the size of the transfer or differ by the transfer’s nature; it’s the flat, maximum rate used for the calculation. That’s why the correct description is that the tax is applied at the highest estate tax rate in effect at the time.

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