Transfer taxes were initially introduced in the US early in the 20th century, with the first version of the estate tax implemented in 1916 and the first version of the gift tax implemented in 1924.
This article focuses on federal gift and estate tax rules however, please note that each state may have additional taxes that may affect transfers made during lifetime and at death. This article will provide a basic overview of the GSTT and discuss how proper planning and use of the GSTT exemption amount may provide a valuable tool for families to shelter their wealth from gift and estate taxation over multiple generations. The GSTT is not only unfamiliar to many, but it is also one of the more confusing taxes to understand. But many people are unaware of an additional tax that could apply to transfers made to heirs more than 1 generation below them (e.g., from a grandparent to a grandchild), known as the generation-skipping transfer tax (GSTT). Many people are aware of gift and estate taxes: the taxes that the IRS assesses on the transfer of assets to heirs made either during one's lifetime or at death. Similar to the gift and estate tax exclusion, there is also a generation-skipping transfer tax (GSTT) exemption with proper planning, it may be possible to maximize the amount transferred by taking advantage of both types of exemptions.When transferring assets to heirs beyond the next generation, both the generation-skipping transfer tax (GSTT) and gift/estate taxes may apply.Individuals seeking to transfer wealth to grandchildren or other "skip" persons should be aware of the generation-skipping transfer tax, which can make it very expensive to move assets to younger generations.See ways to shelter wealth from gift and estate taxes over the generations.
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