877 / What is the GST exemption and how is it applied in determining the GST tax?
For purposes of determining the inclusion ratio, every individual is allowed a GST exemption (the base figure is adjusted annually for inflation). The amount is $13.99 million in 2025 (projected), $13.61 million in 2024, $12.92 million in 2023, $12.06 million for 2022, $11.7 million for 2021, $11.58 million in 2020.1 The base amount was increased to $15 million under the 2025 OBBB for tax years beginning in 2026 (to be further indexed for inflation in future years).
In 2004 to 2009, the GST exemption was equal to the estate tax unified credit equivalent (applicable exclusion amount) rather than to $5 million, as indexed. Any indexing increase in the GST exemption is available for all generation-skipping transfers occurring in the year of the increase and subsequent years in which the GST exemption is equal to $5 million, as indexed, up to the year of the decedent’s death.2
The GST tax was repealed (zero percent) for one year in 2010. The Tax Relief Act of 2010 revived the GST tax and included a $5 million GST exemption that was scheduled to last for two years, 2011 and 2012, with indexing for 2012 (to $5.12 million). ATRA made the $5 million (as indexed) GST exemption permanent for tax years beginning after 2012. The 2017 Tax Act increased the GST exemption amount to a $10 million base amount, which is indexed for inflation). This expanded exemption will apply from 2018-2025.3 The base amount was increased to $15 million under the 2025 OBBB for tax years beginning in 2026 (to be further indexed for inflation in future years).
In general, an individual or the individual’s executor may allocate the GST exemption at any time from the date of the transfer until the time for filing the individual’s federal estate tax return (including extensions actually granted), regardless of whether a return is required (see Q 867).4
The GST exemption is automatically allocated to lifetime direct skips unless otherwise elected on a timely filed federal gift tax return (see Q 915).5
In addition, any unused GST exemption is automatically allocated to indirect skips to a GST trust (see Q 878), effective 2001 to 2009 and after 2010.6 An indirect skip is a transfer (other than a direct skip) to a GST trust that is subject to gift tax. A transferor can elect to have the automatic allocation not apply to (1) an indirect skip, or (2) to any or all transfers made by the individual to a particular trust. The transferor can also elect to treat a trust as a GST trust with respect to any or all transfers made by the individual to the trust. Nevertheless, an allocation still cannot be made until the end of any estate tax inclusion period (see below).
Regulations generally permit elections to allocate or not allocate GST exemption to individual transfers or to all current or future transfers to a trust, or any combination of these. An election with regard to all transfers to a trust can later be revoked with respect to future transfers to the trust. The regulations also permit elections with regard to individual transfers to a trust even where an election is in place with regard to all transfers to a trust.7
Planning Point: Grantors should make elections to allocate or not allocate GST exemption with respect to all transfers to a particular trust. GST exemption can be allocated to trusts benefiting skip persons; while allocations are not made to trusts benefiting non-skip persons.
A retroactive allocation of the GST exemption can be made when certain non-skip beneficiaries of a trust predecease the transferor, effective 2001 to 2009. The non-skip beneficiary must (1) have an interest or a future interest (for this purpose, a future interest means that the trust may permit income or corpus to be paid to such person on a date or dates in the future) in the trust to which any transfer has been made, (2) be a lineal descendant of a grandparent of the transferor, or of a grandparent of the transferor’s spouse or former spouse, (3) be assigned to a generation lower than that of the transferor, and (4) predecease the transferor. In such a case, an allocation of the transferor’s unused GST exemption (determined immediately before the non-skip person’s death) can be made to any previous transfer or transfers to the trust (value of transfer is its gift tax value at the time of the transfer) on a chronological order. The allocation is made by the transferor on the gift tax return for the year of the non-skip person’s death. The allocation is treated as effective immediately before the non-skip person’s death.8
Example. Grandparent creates a trust for the primary benefit of Child, with Grandchild as contingent remainder beneficiary. Grandparent doesn’t expect Grandchild will receive anything, or that the trust will be generation-skipping; so he doesn’t allocate GST exemption to the trust. (Or, perhaps, allocation of the GST exemption was simply overlooked.) Child dies unexpectedly before Grandparent. There is a GST taxable termination at Child’s death. Grandparent can make a retroactive allocation of GST exemption to the trust to reduce or eliminate the GST tax on the taxable termination.
With regard to lifetime transfers other than a direct skip, an allocation is made on the federal gift tax return. An allocation can use a formula (e.g., the amount necessary to produce an inclusion ratio of zero). An allocation on a timely filed gift tax return is generally effective as of the date of the transfer. An allocation on an untimely filed gift tax return is generally effective as of the date the return is filed and is deemed to precede any taxable event occurring on such date. (For certain retroactive allocations, see above.) An allocation of the GST exemption is irrevocable after the due date. However, an allocation of GST exemption to a trust (other than a charitable lead annuity trust, see Q 881) is void to the extent the amount allocated exceeds the amount needed to produce an inclusion ratio of zero (see Q 879).9
An executor can make an allocation of the transferor’s unused GST exemption on the transferor’s federal estate tax return. An allocation with respect to property included in the transferor’s estate is effective as of the date of death. A late allocation of the GST with respect to a lifetime transfer can be made by the executor on the estate tax return and is effective as of the date the allocation is filed. A decedent’s unused GST exemption is automatically and irrevocably allocated on the due date for the federal estate tax return to the extent not otherwise allocated by the executor. The automatic allocation is made to nonexempt property: first to direct skips occurring at death, and then to trusts with potential taxable distributions or taxable
terminations.10
1. Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.
2. IRC. § 2631, as amended by EGTRRA 2001.
3. Pub. Law No. 115-97.
4. IRC § 2632.
5. IRC § 2632(b).
6. IRC § 2632(c), as added by EGTRRA 2001.
7. Treas. Reg. § 26.2632-1.
8. IRC § 2632(d), as added by EGTRRA 2001.
9. Treas. Reg. § 26.2632-1(b).
10. IRC § 2632(e), as redesignated by EGTRRA 2001, Treas. Reg. § 26.2632-1(d).