"GST tax") imposes a tax on both outright gifts and transfers in trust to or for the benefit of unrelated persons who are more than 37.5 years younger than the donor or to related persons more than one generation younger than the donor, such as grandchildren.
These taxable events are sometimes overlooked by people who may be unaware of the existence of the tax or its application to their situation.
That approach posed so many administrative problems that in 1986 Congress repealed the 1976 version and enacted a new generation-skipping transfer tax law.
[8] Irrevocable trusts created before September 25, 1985, are said to be "grandfathered" (no pun intended) and exempt from the GST tax.
That meant that only aggregate gifts and bequests to grandchildren or younger beneficiaries (or generation-skipping trusts) in excess of $3,500,000 (potentially $7,000,000 for a married couple acting in concert) would be subject to the GST tax.
[9] However, the law that created increased exemptions and the ultimate repeal of the GST tax expired on December 31, 2010.
Thus, as of January 1, 2024, the GST exemption amount is $13.61 million per person (inclusive of the inflation adjustment) and twice that for a married couple.
Individuals who wish to leave their wealth to their grandchildren may allocate their GST exemption to generation-skipping trusts for their benefit.
There is support among more liberal politicians, such as Bernie Sanders, to require a GST tax on long-term trusts, after 50 years for example.