Generation-Skipping Transfer Tax 101
The GST tax is a second layer of tax on gifts to grandchildren. Here's who it hits, the $15M exemption, and how to avoid surprises.
Why the GST tax exists
Without the generation-skipping transfer (GST) tax, a wealthy family could avoid estate tax at each generation by leaving assets directly to grandchildren, skipping the children's taxable estates entirely. The GST tax closes that loophole by imposing a separate, flat 40% tax on transfers that 'skip' a generation.
It is one of the most misunderstood taxes in estate planning because it operates in addition to — not instead of — the gift and estate tax. Our GST Tax Calculator shows how the exemption and the tax interact on a specific transfer.
Who counts as a 'skip person'
A skip person is generally someone two or more generations below you: grandchildren, great-grandchildren, and certain trusts for their benefit. Gifts or bequests to a skip person are 'generation-skipping transfers' potentially subject to the tax.
An important exception: if your own child has already died, that child's children move up a generation for GST purposes, so transfers to them are not skips. The rules also reach unrelated people more than 37.5 years younger than you.
The 2026 GST exemption
For 2026, each individual has a GST exemption of $15 million — unified in amount with the estate and gift tax exemption but tracked separately. You can apply this exemption to shield transfers to skip persons from the 40% GST tax.
Because the exemption is separate, it is possible to use up your estate/gift exemption while still having GST exemption available, or vice versa, depending on how transfers are structured and reported. Careful allocation is essential, which is why GST planning is rarely a do-it-yourself exercise.
How the tax is calculated
First, your available GST exemption is applied to the transfer. Any amount above the remaining exemption is the taxable amount, and the GST tax equals 40% of that figure. The calculator lets you enter exemption already used on prior transfers so the result reflects your real remaining shield.
The practical lesson: large gifts to grandchildren that exceed your remaining GST exemption are extraordinarily expensive, because they can attract both gift tax and GST tax. Sequencing and exemption allocation can dramatically change the outcome.
Dynasty trusts and GST planning
The most powerful use of the GST exemption is funding a dynasty trust — a long-lived trust that benefits multiple generations while remaining outside each generation's taxable estate. Allocating GST exemption to such a trust can shelter its entire future growth from transfer tax for as long as the trust lasts.
Our Dynasty Trust Calculator models that compounding benefit. Because the dollars at stake are large and the rules are technical, this is firmly the territory of an experienced estate attorney; document-preparation services and advisor directories can help you find one.
Read the full guide