By Harry Prabandham · Updated September 28, 2026
Estate & Legacy
Generation-Skipping Trusts and the GST Tax in 2026
The GST tax is a separate 40% tax on transfers to grandchildren and later generations. The 2026 exemption is $15 million per person and must be allocated.
Generation-Skipping Trusts and the GST Tax in 2026
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What is the generation-skipping transfer tax?
- It is a federal tax on transfers to skip persons, such as grandchildren or unrelated people more than 37½ years younger, on top of any gift or estate tax.
- The rate is a flat 40%, the top estate tax rate.
- Each person has a GST exemption equal to the basic exclusion amount, $15 million in 2026, now indexed after 2026 under the One Big Beautiful Bill Act.
- If a grandchild's parent has died before the transfer, that grandchild is generally moved up a generation.
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Full Guide
What is the generation-skipping transfer tax?
- It is a federal tax on transfers to skip persons, such as grandchildren or unrelated people more than 37½ years younger, on top of any gift or estate tax.
- The rate is a flat 40%, the top estate tax rate.
- Each person has a GST exemption equal to the basic exclusion amount, $15 million in 2026, now indexed after 2026 under the One Big Beautiful Bill Act.
- If a grandchild's parent has died before the transfer, that grandchild is generally moved up a generation.
What events trigger GST tax?
- A direct skip: a gift or bequest directly to a skip person, or to a trust for only skip persons.
- A taxable distribution: a trust distribution to a skip person.
- A taxable termination: a trust interest ends and only skip persons remain as beneficiaries.
- Each is taxed only to the extent the transfer isn't covered by allocated GST exemption.
How is GST exemption allocated?
- Allocation is made on a timely gift tax return, Form 709, or by automatic allocation rules that apply to direct skips and certain trusts.
- Automatic allocation can apply to trusts you don't intend, or miss trusts you do intend, so allocations or elections are often made explicitly.
- A trust with an inclusion ratio of zero is fully exempt, and later growth stays exempt from GST tax.
What is a dynasty trust?
- It is a long-term trust designed to benefit several generations, funded with allocated GST exemption.
- Assets inside can pass through generations without estate or GST tax at each level, although the trust or its beneficiaries still pay income tax.
- How long a trust can last depends on the state's rule against perpetuities; some states allow very long or unlimited durations.
- Terms can include distribution standards and spendthrift provisions.
What are the trade-offs?
- Dynasty trusts are irrevocable and last decades, so drafting flexibility, such as trust protectors or decanting powers, matters.
- Assets gifted during life keep the donor's basis rather than receiving a step-up at death.
- Ongoing trustee, legal, and tax filing costs continue for the life of the trust.
Key takeaways
- GST tax is a separate 40% tax, with a $15 million per-person exemption in 2026.
- Allocating exemption deliberately, and tracking it, determines whether a trust stays exempt.
- Dynasty trusts avoid transfer taxes at each generation but not income tax.
- Rubric coordinates GST planning with your estate attorney and CPA; confirm allocations with them.
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