Generation-skipping transfer (GST) Tax is a federal tax separate from the U.S. estate & gift tax. A donor reports taxable gifts and GST on Form 709 (U.S. Gift & GST Tax Return). 

The GST tax may apply when a taxpayer gifts property to related individuals who are 2 or more generations below the taxpayer, or the donor makes other transfers to individuals who are more than 37.5 years younger than the donor. These recipients are called “skip” persons because they skip a generation.

Gifting property to skip persons can substantially complicate a taxpayer’s gift & estate tax planning strategies. For most taxpayers, the skip persons are their grandchildren.

The gift tax and GST are separate taxes and separate calculations. The GST does not apply every time a donor gifts property to a donee. It generally only applies to direct or indirect transfers to a “skip” person. 

For the 2024 tax year, each taxpayer has a lifetime gift tax exemption of $13.61 million, up from $12.92 million in 2023. 

A taxpayer also gets a separate GST lifetime exemption, which functions similarly to the lifetime gift tax exemption. The GST exemption matches the gift tax exemption of $13.61 million for 2024. The GST also has an annual exclusion amount, similar to the regular gift tax annual exclusion. 

Example of a GST Tax Issues

Bob Smith (unmarried) has two daughters, Emily and Jane, and three grandchildren, Adam, Michael, and Joel. If Bob gifts property to his daughters Emily and Jane, the transfer may be subject to gift taxes, but it is NOT subject to GST because Emily and Jane are not “skip” persons. However, if Bob gifts property to his grandchildren, the transfer may be subject to gift and GST because his grandchildren are “skip” persons. 

The annual gift tax exclusion for 2024 is $18,000 per donee, and the GST annual exclusion is also $18,000 per donee. 

Bob Smith gifts $20,000 to his daughter, Emily, and he gifts $25,000 to his grandchild, Michael. Michael is a skip person, and Emily is not a skip person.

  • The gift of $20,000 to Emily exceeds the annual exclusion by $2,000 ($20,000 – $18,000) and is a reportable gift on Form 709. No GST applies.
  • The gift of $25,000 to Michael, a skip person, exceeds the annual exclusion by $7,000 ($25,000 – $18,000) and is a reportable gift on Form 709. In addition, there is a GST tax issue. The transfer to Michael exceeds the annual GST exclusion by $7,000 ($25,000 – $18,000). Bob Smith must also report the GST on his Form 709.

Other Information on Gift Taxes

Taxpayers can find more information on gift, estate, and GST taxes by visiting the IRS website and reviewing IRS Publication 559 (Survivors, Executors and Administrators).