generation-skipping transfer

Generation-skipping transfer refers to gifts made through trust to family members and others who are a generation younger than the creator of the trust. Before the generation-skipping transfer tax (GSTT), wealthy individuals could make gifts or bequests to their grandchildren in order to avoid estate and gift taxes that otherwise would apply. The generation-skipping transfer tax closed this loophole by taxing these kinds of transfers similarly to other large gifts and bequests. Now, generation-skipping transfers above the applicable exclusion amount are taxed at the highest rate that apply to other transfers. For 2025, the exemption is $13.99 million per individual (indexed for inflation), and the maximum rate is 40%. Transfers below the exemption amount are not subject to the GSTT.

While the GSTT closed the loophole of direct generation-skipping transfers, certain estate planning techniques, such as dynasty trusts, can still be structured to minimize or avoid gift, estate, and GST taxes across multiple generations.

See also: 26 U.S. Code Chapter 13 – Tax on Generation-Skipping Transfers

[Last reviewed in August of 2025 by the Wex Definitions Team] 

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