Personal Finance & Estate › Income, gift, estate & real-estate taxes › Federal estate & gift tax (unified; California has none)
Generation-skipping transfer (GST) tax
Since 1986· Tax rule
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
An extra 40% tax on gifts and bequests that skip a generation, such as to grandchildren, above an exemption.
See it on the Personal Finance & Estate map →How it works
It stops wealthy families from skipping a round of estate tax by leaving assets to grandchildren. It applies to 'skip persons': grandchildren, or unrelated people over 37½ years younger. Each person's GST exemption equals the estate exemption, $15 million in 2026, and must be allocated, often on Form 709. Unlike the estate exemption, it isn't portable to a surviving spouse. A grandchild whose parent has died moves up a generation. Long-lasting 'dynasty trusts' depend on careful allocation.
Why it matters for you
Only large estates owe it, but any trust for grandchildren needs GST planning; allocation mistakes can cost 40% decades later. Ask an estate attorney.
Rules, limits and sources (2026)
Chapter 13 of the Internal Revenue Code, enacted in the Tax Reform Act of 1986 after a 1976 version was repealed; since 2001 its exemption has matched the estate exemption, now $15 million under the 2025 law.
Watch out for
Whether centuries-long dynasty trusts are good policy is debated; states compete to allow them, and California's limits push some families to Nevada or South Dakota trusts.
Connections (2)
▸Generation-skipping transfer (GST) tax is the grandchild layer of Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
Estate and gift tax is meant to hit wealth once per generation. Leaving assets straight to grandchildren would skip a round, so the GST tax adds a second 40% tax on transfers to skip persons beyond the GST exemption. It applies on top of gift or estate tax, with the same rate and a parallel exemption.
When it applies
First enacted in 1976, repealed retroactively, then rebuilt in the Tax Reform Act of 1986.
The rule
Chapter 13 of the IRC (Secs. 2601-2664); Form 709 and Form 706 Schedule R report allocations.
Watch out for
Trusts made before September 1985 are grandfathered, and changing them under state law can trigger GST disputes; allocation rules remain intricate.
▸Generation-skipping transfer (GST) tax has an exemption equal to Estate & lifetime gift exemption ($15M in 2026)Law or rule (2026)
How they connect
By law, the GST exemption equals the estate and gift exemption: $15 million per person in 2026, rising with inflation. But it works separately: you allocate it to specific gifts and trusts, it isn't portable to a spouse, and any unused amount is auto-allocated at death under default rules.
When it applies
Linked since the 2001 tax law; the 2025 law set the shared $15 million figure for 2026.
The rule
IRC Sec. 2631(c) sets the GST exemption equal to the basic exclusion amount under Sec. 2010(c).
Watch out for
If a future law cut the exemption, how earlier GST allocations would be treated is unclear; IRS anti-clawback rules address estate tax, not GST.