What is the Generation Skipping Transfer Tax?

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The Generation Skipping Transfer (GST) Tax is designed to ensure that a transfer tax is paid at each generational level. In the early days of the federal estate tax, the wealthiest families devised a method to effectively be taxed every other generation. Your parents would leave their estate to your children (instead of you), thereby avoiding tax on their estate upon your death. In turn, you would leave your estate to your grandchildren instead of your children, thereby allowing the transfer to escape estate tax when your children die. This became known as a generation-skipping transfer.

Over time, wealthy clients then began leaving their assets in long term trusts to benefit multiple generations, and thereby escaping taxation at each generational level.

As with the estate and gift tax exemptions, the GST tax exemption is also $5.43 million per person for 2015. However, while the estate tax exemption has been made portable between married couples, the generation skipping transfer tax exemption has not. Thus, special planning is required to take full advantage of the GST opportunities. Please consult with your professional estate-planning advisor on your specific situation.