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Categories: Estate Tax Planning

Generation-Skipping Transfer Tax (GSTT)

The Generation-Skipping Transfer Tax (GSTT) is a federal tax imposed on transfers of property or assets that skip one or more generations of beneficiaries, typically from grandparents to grandchildren, bypassing the parents.

The GSTT is designed to prevent wealthy individuals from avoiding estate and gift taxes by transferring wealth directly to younger generations. It applies to both direct gifts and bequests and is triggered when the amount transferred exceeds a certain exclusion limit set by the Internal Revenue Service (IRS).

For example, if a grandparent gifts $1 million to a grandchild, and the GSTT exemption is $12.06 million (as of 2022), the transfer would not incur GSTT. However, if the transfer exceeds this exemption, the excess amount would be subject to the GSTT rate, which is currently aligned with the highest estate tax rate.

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Alternative Meanings:
  • Generation-Skipping Transfer Tax (GSTT)

    Generation-Skipping Transfer Tax (GSTT)

    The Generation-Skipping Transfer Tax (GSTT) is a federal tax imposed on transfers of property that skip generation levels, such as gifts or inheritances given directly to grandchildren or other beneficiaries that are two or more generations below the donor.

    The GSTT aims to prevent individuals from avoiding estate taxes by transferring wealth to younger generations without incurring taxes at the intervening generation level. When the value of the transfer exceeds a certain exemption amount, the excess is subject to the GSTT at a rate equal to the highest federal estate tax rate. For example, if a grandparent gifts a large sum of money directly to their grandchild, and the amount exceeds the GSTT exemption, the transfer may incur GSTT liability.

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