S—Generation-Skipping Transfers

The basic intent of the federal estate tax system is to tax property as it is passed from one generation to the next. The generation-skipping transfer (GST) tax is intended to prevent wealthy families from reducing estate taxes by skipping one or more generations (e.g., grandparents pass their estate to grandchildren in order to reduce or avoid estate taxes at their children’s estates).

The GST tax is inadditionto the normal estate or gift tax and is applied to the transfer of property to a person two or more generations younger than the transferor (e.g., from grandparent to grandchild). Themaximumestate tax rate, 40 percent in 2022, is used in calculating the GST tax. However, there is an exemption that allows aggregate transfers of $12,060,000, during lifetime or at death, to be exempt from the GST tax ($24,120,000 total for both husband and wife).

To illustrate, assume that Grandparents have an estate totaling $32,000,000. Assume also that their Children have substantial estates in their own right and the Grandparents desire to fully use their GST tax exemptions.