GST Tax Calculator 2026

What Is the Generation-Skipping Transfer Tax?

The generation-skipping transfer (GST) tax is a federal tax imposed under IRC Section 2601 on transfers of property to a "skip person" — someone two or more generations below the transferor. The most common example is a grandparent transferring wealth directly to a grandchild, bypassing the parent generation entirely. Without the GST tax, families could avoid one full round of estate or gift tax by skipping a generation. Congress enacted the GST tax in 1986 to close this loophole and ensure each generational transfer is taxed. The GST tax applies in addition to any applicable gift or estate tax, making it one of the most punitive levies in the federal tax code. Source: IRS — Generation-Skipping Transfer Tax.

A "skip person" is defined under IRC Section 2613 as either (a) an individual assigned to a generation two or more below the transferor, or (b) a trust where all beneficiaries are skip persons. Generational assignment follows family lines: grandchildren are two generations below, great-grandchildren three. For unrelated persons, generations are assigned by age: someone born 12.5 to 37.5 years after the transferor is one generation below; 37.5+ years below is two generations (a skip person).

GST Tax Exemption for 2026

For 2026, each individual has a GST exemption of $15,000,000, the same amount as the federal estate and gift tax exemption under the One Big Beautiful Bill Act (OBBB). A married couple can shield up to $30,000,000 from GST tax by each allocating their full exemption. The exemption is allocated to specific transfers on Form 709 (for lifetime transfers) or Form 706 (at death). Allocation can be automatic or elected — careful allocation planning is critical because once allocated, the exemption cannot be reallocated to a different transfer. The GST exemption is indexed for inflation and adjusts annually. If the transferor dies before using their full exemption, the unused portion is automatically allocated to direct skips at death under IRC Section 2632.

Three Types of GST Transfers

IRC Section 2612 defines three types of generation-skipping transfers, each with different tax consequences and responsible parties:

Direct Skip: A transfer directly to a skip person (or a trust exclusively for skip persons) that is subject to gift or estate tax. Example: a grandparent gives $20 million to a grandchild. The transferor (or the estate) pays the GST tax. Direct skips are the simplest form and most commonly encountered.

Taxable Termination: When the last non-skip interest in a trust terminates (by death, lapse of time, or release of power), and only skip persons remain as beneficiaries. The trustee pays the GST tax from trust assets. Example: a trust for a child terminates at the child's death, with the remainder going to grandchildren.

Taxable Distribution: A distribution from a trust to a skip person that is not a direct skip or taxable termination. The skip person (beneficiary) is liable for the GST tax. Example: a trustee distributes income from a generation-skipping trust to a grandchild during the trust's term. If the trust pays the tax on behalf of the beneficiary, the tax payment itself is an additional taxable distribution.

Planning Strategies to Minimize GST Tax

Dynasty trusts: A dynasty trust is designed to last for multiple generations (or in perpetuity in states that have abolished the rule against perpetuities). By allocating the full $15M GST exemption to a dynasty trust, all future growth inside the trust passes to grandchildren, great-grandchildren, and beyond — completely free of estate and GST tax at each generational level. States like South Dakota, Nevada, and Alaska are popular for dynasty trusts due to favorable trust laws.

Exemption allocation: Strategic allocation of the GST exemption to transfers with the highest growth potential maximizes the long-term benefit. Allocating exemption to a trust holding appreciating assets (real estate, business interests) shelters more future wealth than allocating to cash or bonds. The "inclusion ratio" determines what fraction of a trust is subject to GST tax — a fully exempt trust has an inclusion ratio of zero.

Annual exclusion gifts: Direct skip gifts that qualify for the $19,000 annual gift tax exclusion (2026) are also excluded from GST tax, but only for outright gifts or gifts to trusts that meet specific requirements under IRC Section 2642(c) (Crummey trusts with single beneficiaries). This allows annual tax-free transfers to grandchildren without using GST exemption.