Meanwhile, trust and estate lawyers are pondering a separate issue: The high tax cost of Mellon’s generosity. The government contended that Mellon, using a North Carolina interior decorator as a go-between, sent $725,000 to Hunter on Edwards’ behalf. We figure this required her to pay federal gift tax, and also a little-known federal tax known as the generation-skipping transfer tax. Together they more than doubled the cost of her gift, one lawyer estimates.
By way of background, the recipient of such a gift does not have to pay income tax. But the person making it must file a federal gift tax return reporting the gift. (See “Time To File That Gift Tax Return.”)
Uncle Sam Got More Than John Edwards From Billionaire Heiress, Tax Pros Say – Forbes