LawMeaning

Generation-Skipping Transfer Tax

Also known as: GST Tax

In one sentence

A federal tax on gifts or inheritances that skip a generation, preventing tax avoidance.

Plain English

The Generation-Skipping Transfer Tax (GST Tax) is a federal tax that applies when you transfer money or property directly to grandchildren or skip a generation in your family tree, rather than passing it to your children first. Congress created this tax to prevent wealthy families from avoiding estate taxes by jumping over a generation. The tax applies in addition to regular gift and estate taxes, and it can be quite steep unless you use special exemptions and planning strategies.

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Example

Grandmother leaves $5 million directly to her grandchildren instead of to their parents. The IRS imposes the GST Tax on this transfer because it skips over the grandchildren's parents' generation, in addition to any regular estate taxes owed.

Used in a sentence

“The family's estate plan had to account for Generation-Skipping Transfer Tax when the grandmother wanted to leave assets directly to her grandchildren.”

Related terms

Trust Instrument
The legal document that creates a trust and outlines how assets will be managed and distributed.
Intestate Succession
The legal process of distributing a deceased person's property when they leave no valid will.
Testamentary Capacity
The legal and mental ability required to make a valid will or trust.
Charitable Trust
A trust that provides income to beneficiaries while ultimately donating the remaining assets to charity.
Escheat
Property passes to the state when a person dies with no will and no heirs.
Intended Beneficiary
A person who is not a party to a contract but has the right to enforce it because the parties meant to benefit them.
Probate
The court process of validating a will and distributing a deceased person's estate.
Elective Share
A surviving spouse's right to claim a portion of the deceased spouse's estate despite the will.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.