GSTT Exemptions and Allocations
The term GSTT Exemptions and Allocations refers to specific provisions under the Generation-Skipping Transfer Tax (GSTT) that allow individuals to exempt certain transfers from this tax and allocate their GST exemption amounts to various gifts or trusts.
The GSTT is designed to prevent individuals from avoiding estate and gift taxes by transferring assets to beneficiaries who are two or more generations younger, such as grandchildren. Each individual has a GST exemption amount, which can be used to shield a specified amount from the GSTT.
For example, if an individual has a GST exemption of $11.7 million (as of 2021), they can make generation-skipping transfers up to that amount without incurring GSTT. Allocating this exemption properly is critical, as it determines which transfers are shielded from tax.
Allocations can be made either automatically or by election, and it is essential to adhere to IRS guidelines to ensure that the exemptions are applied correctly to avoid unintended tax consequences.
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