generation-skipping transfer tax

Generation-skipping transfer tax (GSTT) is a federal tax first enacted in 1976 that applies to transfers of property, whether outright or through a trust, to individuals more than one generation younger than the transferor (such as grandchildren). It was designed to prevent wealthy individuals from avoiding estate and gift taxes by transferring assets directly to younger generations and bypassing their children.

The GSTT imposes a flat tax at the highest federal estate tax rate on transfers that exceed the exemption amount. 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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