What is the Generation-Skipping Transfer (GST) Tax?
The GST tax is a flat-rate tax tied to the top marginal federal estate tax. In general, generation skipping is a transfer, outright or in trust, that avoids the estate tax in one or more generations junior to the transferor. This tax applies at the time of the generation-skipping transfer. It was enacted because multi-generation trusts, called dynasty trusts, resulted in the loss of federal tax revenue. It is designed to tax transfers that skip one generation, like the grantor’s children, to reach a more remote generation, like grandchildren. The GST tax can also apply in non-family situations—the tax may be due if a non-relative beneficiary of a gift or estate is 37 ½ years younger than the donor or deceased. A single wealth transfer may be subject to the gift tax and the generation-skipping transfer tax, or the estate tax and the generation-skipping transfer tax. Usually, the same transfer is not subject to both the gift tax and the estate tax. Many estate plans are designed to prese
