What is the generation-skipping transfer tax?

The generation-skipping transfer (GST) tax is an extra 40% federal tax on assets you pass to grandchildren or anyone more than one generation below you (technically, anyone 37½ or more years younger who isn't your spouse). Congress created it so wealthy families couldn't dodge a layer of estate tax by skipping their children and giving straight to grandkids. The good news: there's a GST exemption equal to the estate tax exemption – about $13.99 million per person in 2025 – so transfers under that amount aren't hit. The tax matters mainly for large estates and for dynasty trusts that benefit multiple future generations. Like the estate exemption, the GST exemption is scheduled to roughly halve after 2025 unless Congress extends it. If skip-generation gifting is part of your plan, allocating GST exemption correctly is essential and worth professional help.