When planning how to pass your wealth to future generations, you may be familiar with gift and estate taxes. But there’s another important piece of the puzzle you should know about, the Generation Skipping Transfer (GST) tax.
This tax can feel complex, but understanding the basics is key to smart, multi-generational wealth planning. Let’s break it down.
What is the GST Tax?
Think of the GST tax as a rule designed to ensure wealth is taxed at each level as it moves down the family lineage. In the past, someone might have “skipped” their children and given assets directly to their grandchildren to avoid paying estate taxes at both the children’s generation and the grandchildren’s generation. The GST tax was created to close this loophole.
Simply put, while gift and estate taxes apply to when you transfer assets, the GST tax focuses on who receives them, specifically, grandchildren or even great-grandchildren (whether directly or via trust).
What’s important to know about the GST Tax is that it can come into play while the gift and estate tax can also be in play. They are two separate tax regimes that can be applicable at the same time depending upon who is receiving assets.
Key Numbers for 2026
Just like with gift and estate taxes, there are exemptions you can use to minimize your tax burden. For 2026, you should know these two key figures:
- $15 Million Lifetime GST Exemption: You can transfer up to $15 million in your lifetime to “skip people” (like grandchildren) without triggering the GST tax. This is separate from, but equal to, the gift and estate tax lifetime exemption.
- $19,000 Annual GST Exclusion: You can give up to $19,000 per year to any individual, including a grandchild, without it counting against your lifetime exemption. Note that gifts to most trusts are not eligible for the annual GST exclusion, so it is important to discuss with your advisors as the annual GST exclusion is quite nuanced.
In addition to the annual exclusion, federal tax law allows individuals to make unlimited payments for another person’s education or medical care without using any gift, estate, or GST tax exemption. To qualify, these payments must be made directly to the educational or medical institution. They cannot consist of payments made directly to an individual, even if it is a reimbursement.
- Education includes tuition paid directly to a qualifying school or university (but not books, housing, or other expenses).
- Medical expenses include payments made directly to healthcare providers or insurers for qualifying medical care.
When structured properly, these payments are not treated as taxable gifts, do not count against the annual exclusion, and do not consume lifetime gift, estate, or GST exemption. This makes direct payment of education and medical costs a powerful planning tool for families wishing to support children or grandchildren while preserving transfer tax exemptions for other planning goals.
We’re Here to Help
Multi-generational planning involves navigating several moving parts. A misstep with the GST tax can lead to significant and unnecessary tax bills for your family. Thoughtful planning ensures your wealth is preserved for generations to come.
If you are considering making significant gifts to your grandchildren or setting up a long-term family trust, contact the Saville CPAs & Advisors team to ensure your legacy goals are aligned with a smart, tax-efficient strategy.