What is a Generation Skipping Transfer (GST) tax, and how does it affect me?

The generation-skipping transfer (GST) tax is an additional tax on a transfer of property that skips a generation. The GST tax was designed to prevent families from avoiding the estate tax for one or more generations by making gifts or bequests directly to grandchildren. The GST effectively imposes another layer of tax on transfer to generations that are two or more generations younger than the donor. The GST uses the same exemption amount and tax rate as the estate tax.

For clients who wish to provide for grandchildren or other generations that are deemed skips, careful planning must be undertaken to avoid imposition of the GST.