Generation-Skipping Transfer Tax
A federal tax on transfers of assets to people who are two or more generations younger than the transferor (like grandchildren). It prevents wealthy families from avoiding estate tax by skipping a generation. The exemption matches the estate tax exemption ($13.61 million in 2024).
Legal Definition
A tax imposed under IRC Chapter 13 on transfers to skip persons (persons two or more generations below the transferor), designed to ensure that transfer taxes are imposed at each generational level, with an exemption amount equal to the basic exclusion amount under IRC ยง2010.
Practical Example
Wealthy grandparents want to leave $20 million directly to their grandchildren, skipping their children. The first $13.61 million is exempt. The remaining $6.39 million is subject to the generation-skipping transfer tax (40% rate) in addition to any applicable estate tax.