Tax Facts

874 / What is the federal generation-skipping transfer tax?

The federal generation-skipping transfer (GST) tax is a tax on the right to transfer property to a skip person (a person two or more generations (see Q 887) younger than the transferor).1 The GST tax was repealed for one year in 2010 but, while the GST tax was technically zero for 2010, it was reinstated thereafter. For 2011 and 2012, the maximum GST tax rate was 35 percent. ATRA increased this maximum GST tax rate to 40 percent and made the provision permanent.2

TRA 2010 unified the estate, gift and GST tax lifetime exemption amounts and increased the exemption to $5 million for 2010-2011. This $5 million base amount is adjusted annually for inflation and increased to $5.12 million for 2012. The $5 million lifetime exemption was scheduled to sunset (expire) after 2012, but ATRA repealed the sunset provisions to maintain the enlarged exemption amount and permanently unify the estate, gift and GST taxes. The 2017 tax reform legislation doubled the base amount for 2018-2025. The exemption level was adjusted for inflation to $5.49 million in 2017, and jumped to $11.18 million in 2018, $11.4 million for 2019, $11.58 million for 2020, $11.7 million for 2021, $12.06 million for 2022, $12.92 million in 2023, $13.61 million in 2024 and $13.99 million for 2025 per the 2017 tax legislation.3

Depending on the transfer, a generation-skipping transfer is reported on either a gift tax return or an estate tax return. The person required to file the return ( Q 890) and pay the tax ( Q 891) also depends on the type of transfer.

Generation-skipping transfers ( Q 875) include direct skips, taxable terminations, and taxable distributions. Taxable terminations and taxable distributions apply to certain terminations of interests in trusts or distributions from trusts. Two spouses can elect to have all generation-skipping transfers made by either spouse during the year treated as made one-half by each spouse ( Q 888).

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