Using 'Delaware Tax Trap' to Avoid Generation-Skipping Taxes
Journal of Taxation, Vol. 68, pp. 242-248, 1988
7 Pages Posted: 21 Mar 2012 Last revised: 6 Jun 2012
Date Written: November 3, 2011
The “Delaware Tax Trap” of Internal Revenue Code §2041(a)(3) historically was a provision to be avoided but it can be a useful means of incurring estate tax rather than a more expensive generation-skipping transfer tax in situations in which the beneficiary should decide which tax to incur. This article introduces readers to the operation of this arcane provision and how it can be utilized by a beneficiary’s estate plan to best engineer the tax treatment that will apply when the beneficiary’s interest in a generation-skipping trust terminates.
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