Fidelity Investments
Private Wealth Management
March 12th, 2026
Understanding The Generation-Skipping Transfer Tax: Ways to pass wealth over multiple generations.
You’re probably aware of gift and estate taxes that the IRS assesses on the transfer of assets to beneficiaries made either during one’s lifetime or at death. But you may not be familiar with an additional tax that could apply to transfers made to beneficiaries more than 1 generation below you (e.g., from a grandparent to a grandchild), known as the generation-skipping transfer tax (GSTT).
What is the generation-skipping transfer tax?
The generation-skipping transfer tax is a federal tax on transfers of assets to individuals that are considered more than one generation below the transferor, or to a trust for these individuals’ benefit (“skip persons”). This would include transfers from a grandparent to a grandchild or to other individuals who are more than 37½ years younger than the transferor. This tax is equal to the highest federal gift and estate tax rate at the time of the transfer (40% in 2026) and is in addition to any other federal gift or estate tax that may be owed.
The GSTT was implemented in 1986 to prevent wealthy families from avoiding estate taxes at the death of each generation through using ongoing trusts. Prior to this tax, it was possible to pass assets to a trust for the benefit of multiple generations, thus avoiding estate taxes estate tax after the first transfer to trust as each generation passed away.
Dealing with the GSTT can be complex and confusing. With proper planning, the exemption provides opportunities to reduce or potentially eliminate the transfer taxes associated with gifting or passing money to grandchildren or other skip persons, ultimately allowing more to pass to younger generations.
