Definition - What does Generation Skipping mean?
Generation skipping is when a grandparent gives a gift to a grandchild, skipping over his or her child. This was initially done to try to prevent taxation upon the gift. A grandparent would set up a trust that gave the grandchild the gift. However, such gifts are now taxable. However, generation skipping gifts are non taxable if they are under $10,000.00.
Justipedia explains Generation Skipping
An example of a generation skipping gift would be a grandparent who sets up a trust that is designed to give his grandchild 40 acres of land upon the grandchild's 21st birthday. If the value of the land is under $10,000.00, then it may not be subject to a gift tax. However, if it is valued over $10,000.00, then it could be subject to a gift tax. These rules apply only when the parent in the grandparent, parent, grandchild, relationship is being skipped over.