Glossary

What is Generation-Skipping Transfer Tax?

A federal tax on transfers of wealth to beneficiaries two or more generations below the transferor, designed to prevent tax avoidance through generation-skipping.

Full Definition

The Generation-Skipping Transfer Tax (GSTT) is a federal tax imposed on transfers of property to beneficiaries who are two or more generations below the transferor (e.g., grandchildren). The GSTT was designed to close the loophole of skipping a generation to avoid one round of estate taxes. The GSTT rate is 40% and applies in addition to estate or gift taxes. Each individual has a GST exemption ($13.61M in 2024) that can be allocated to transfers. Life insurance trusts are commonly structured to be GST-exempt, maximizing the wealth transfer to future generations. Dynasty trusts can extend GST-exempt status for multiple generations.

Related Terms

Irrevocable Life Insurance Trust (ILIT)

Estate Tax and Insurance

Wealth Replacement Trust

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Related Coverage & Services

Irrevocable Life Insurance Trust (ILIT)

A trust that owns a life insurance policy, removing the death benefit from the insured's taxable estate while providing liquidity for estate taxes.

Estate Tax and Insurance

Life insurance strategies used to provide liquidity for estate tax obligations, prevent forced asset sales, and facilitate wealth transfer.

Wealth Replacement Trust

A life insurance trust designed to replace wealth donated to charity through a Charitable Remainder Trust, preserving the inheritance for heirs.

Life Insurance

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