What is the generation-skipping transfer (GST) tax and what distributions are subject to the GST tax?
The GST tax is a transfer tax imposed on all gifts and distributions from you (or a trust established by you) to a grandchild (or great-nephew or great-niece) or an unrelated persons more than 37.5 years younger than you. The primary device for not paying the tax is the GST tax exemption. Each individual is given a GST exemption equal to the applicable exclusion amount, which is $2 million in 2007 (and is projected to increase over the next few years as the estate tax exemption increases). Because of the GST tax exemption, the GST tax usually is relevant only in larger estates. There are rules for the automatic allocation of the exemption, but often the GST tax exemption must affirmatively be allocated; it is not done automatically.
