Generation-Skipping Transfer Tax

The Generation-Skipping Transfer Tax (GSTT) is a federal tax imposed on transferring assets to grandchildren or later generations, skipping the children. It aims to prevent wealthy families from avoiding taxes by passing large estates directly to younger generations, thus bypassing the typical taxation that occurs when transferring wealth to children. The GSTT applies if the value of the gift or inheritance exceeds a certain threshold, which is adjusted annually. Essentially, it ensures that wealth is taxed appropriately at each generational level, promoting fairness in the tax system.