**Generation-Skipping Transfer Tax** (noun) — A U.S. federal tax imposed on transfers of property that skip a generation, typically from grandparents to grandchildren, whether made during life or at death, designed to prevent wealthy families from avoiding estate taxes by bypassing their children's generation.
The generation-skipping transfer tax (GST tax) is a U.S. tax that applies when you transfer significant assets directly to someone two or more generations below you—like your grandchildren—instead of to your children first.
This tax exists to close a loophole. Without it, wealthy families could avoid estate taxes by skipping their children and leaving everything to grandchildren, meaning assets would only be taxed once instead of twice (once when passing to children, again when passing to grandchildren).
⏱ When you'll encounter this term
If you're planning your estate in the United States and considering leaving assets directly to grandchildren, you should understand how the GST tax might apply. The tax has a lifetime exemption amount (which changes periodically), and transfers below this threshold are generally not taxed.
For most families, the GST tax is not a concern because the exemption amount is quite high. However, if you have substantial wealth or complex family dynamics, you might want to speak with an estate planning professional who understands how to structure gifts and bequests to minimize tax impact.
Note that this is specifically a U.S. federal tax. Other countries, including Australia, Canada, and the UK, do not have an equivalent generation-skipping transfer tax.
**Related terms:** [Estate Tax](/dictionary/estate-tax), [Gift Tax](/dictionary/gift-tax), [Gift](/dictionary/gift), [Grantor](/dictionary/grantor)
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