Written by: Attorney Raymond Chandler
The generation-skipping transfer tax, or GST tax, is a separate federal tax that applies when significant wealth passes to a grandchild, a great-grandchild, or certain unrelated people much younger than you, rather than to your own children. It sits on top of the regular estate and gift tax rather than replacing it, taxed at a flat 40% rate once transfers exceed a lifetime exemption. As of 2026, that exemption is $15 million per person, or $30 million for a married couple, permanently set under recent federal legislation.
For the overwhelming majority of families, this tax simply doesn't apply. For families approaching or exceeding that threshold, though, understanding how it works, and how a trust interacts with it, matters quite a bit.
Key takeaways
The GST tax is a separate 40% federal tax on transfers to grandchildren or more remote descendants, applied in addition to regular estate and gift tax.
As of 2026, the GST exemption is $15 million per individual. A married couple may potentially use a combined $30 million of GST exemption if each spouse properly uses his or her own exemption, because unused GST exemption is not portable between spouses. .
A "skip person" generally means a grandchild, great-grandchild, or an unrelated person more than 37.5 years younger than you.
Trusts can be structured specifically to use the GST exemption efficiently, sometimes lasting for multiple generations.
Because allocation of the exemption involves specific tax elections, this isn't a do-it-yourself calculation.
Why this tax exists
Congress created the GST tax in 1986 specifically to close a gap wealthy families were using: instead of leaving assets to their children, paying estate tax once, then having those children eventually leave the same assets to grandchildren, paying estate tax a second time, some families skipped a generation entirely, transferring wealth straight to grandchildren and only paying transfer tax once instead of twice. The GST tax closes that gap by applying its own tax whenever a transfer skips a generation this way.
Who counts as a "skip person"
The rule is based on generations, not just relationships. A grandchild or more remote descendant is generally a skip person, although special rules can change the generation assignment—for example, when the intervening parent is deceased . So, in some cases, a skip person is an unrelated person who is more than 37.5 years younger than you. A trust itself can even be treated as a skip person if every beneficiary with an interest in it is a skip person.
One detail that surprises people: a son-in-law or daughter-in-law is treated as being in your child's generation, not a skip person, regardless of the actual age gap, because relatives by marriage follow their spouse's generational placement rather than their own age.
How the tax actually applies
The GST tax can be triggered in three different ways: a direct transfer straight to a skip person, a trust interest ending in a way that shifts the property to a skip person, or a trust making a distribution to a skip person while non-skip beneficiaries still hold an interest in that same trust. Transfers that are fully subject to GST tax can be taxed at a rate of up to 40%.
The exemption, and why 2026 changed things
Recent federal legislation permanently set the GST exemption, unified with the estate and gift tax exemption, at $15 million per individual starting in 2026, with inflation adjustments beginning the following year. There's no scheduled reduction built into current law, which removes a lot of the planning uncertainty that existed in prior years, when a much lower exemption was set to take effect automatically without new legislation.
Where trusts come in
Because the GST exemption can be allocated to a trust rather than just a one-time transfer, a properly structured trust can be designed to hold assets for multiple generations, sometimes referred to as a dynasty trust, using the exemption once at the time of funding rather than repeatedly as wealth passes down through each generation. Whether this structure makes sense depends entirely on the size of an estate and a family's broader goals, and it involves specific tax elections on gift and estate tax returns that have to be made correctly the first time.
Frequently asked questions
Does the generation-skipping transfer tax apply to most families? No. With a 2026 exemption of $15 million per individual, it only affects a small percentage of estates.
Is a grandchild always a skip person? A grandchild or more remote descendant is generally a skip person, although special rules can change the generation assignment—for example, when the intervening parent is deceased.
Does the GST tax replace the regular estate tax? No. It applies in addition to the regular estate and gift tax on transfers that skip a generation, which is why an unplanned transfer can potentially be taxed at both levels.
Is the current GST exemption permanent? As of 2026, yes, under recent federal legislation, with inflation adjustments beginning in 2027, though future legislation could still change this.
If you're planning to leave significant assets to grandchildren or want a trust structured with GST planning in mind, call Polaris Estate Planning & Elder Law for a conversation. This is exactly the kind of planning where getting the details right the first time matters.
Ready to secure your family’s future or have a question about getting started? Call Polaris Estate Planning and Elder Law today.
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