Generation-Skipping Transfer Tax - GSTT

DEFINITION of 'Generation-Skipping Transfer Tax - GSTT'

A tax incurred when there is a transfer of property by gift or inheritance to a beneficiary who is more than 37.5 years younger than the donor. Generation-skipping transfer taxes serve the purpose of ensuring that taxes are paid when assets are placed in a trust, and the person receives amounts in excess of the generation-skipping estate tax credit.

BREAKING DOWN 'Generation-Skipping Transfer Tax - GSTT'

GSTT commonly occurs with a transfer to grandchildren. However, most people will hardly incur this tax as the GSTT exemption has for the past few years ranged between $3.5 million to $5 million. Additionally, transferors can create dynasty trusts which are completely released from paying the GSTT.