what is a generation skipping trust gst 
a generation skipping trust gst is a type of legally binding trust agreement in which the contributed assets are passed down to the grantor s grandchildren thus skipping the next generation the grantor s children by passing over the grantor s children the assets avoid the estate taxes taxes on an individual s property upon his or her death that would apply if the children directly inherited them generation skipping trusts are effective wealth preservation tools for individuals with significant assets and savings understanding a generation skipping trust gst because a generation skipping trust effectively transfers assets from the grantor s estate to grandchildren the grantor s children never take title to the assets this is what allows the grantor to avoid the estate taxes that would apply if the assets came into the possession of the next generation first though grandchildren are the most common beneficiaries the recipient of a generation skipping transfer doesn t necessarily have to be a family member the beneficiary can be anybody who is at least 37 years younger than the grantor and not a spouse or ex spouse generation skipping trusts can still provide some financial benefits to the next generation because the grantor can give children access to any income the trust s assets generate while still leaving the assets themselves in trust for grandchildren taxing the generation skipping transfer trust gst due to the generation skipping trust s viability as a loophole to avoid federal estate taxes changes were made to the tax code in 1986 that created a generation skipping transfer tax generation skipping transfer tax rates have risen and fallen over the years with a recent high of 55 in 2001 and a low of 0 in 2010 due to an exemption awarded by the 2010 tax relief act intended to ensure that people transferring modest sums of wealth to younger generations don t have to bear the brunt of the tax burden these exemptions were secured by the american taxpayer relief act of 2012 this legislation established a permanent 5 million tax exemption on generation skipping transfers which meant the federal tax on a generation skipping transfer of wealth would apply only if the amount exceeded 5 million however the gstt truly applies to the very wealthy because the transferred amount is astronomical most people will never encounter the gstt because of the high threshold the tax only applies when the transferred amount exceeds 11 4 million per individual for 2019 and in 2021 is 11 7 million the generation skipping tax exemption amount for 2021 2 1 increasing the generation skipping trust tax exemptioneven with the installment of taxes on generation skipping transfers gsts still serve as tools for high net worth individuals to transfer wealth at a lower tax rate and they became even sharper tools on dec 22 2017 when president donald trump signed into effect the tax cuts and jobs act which doubled the generation skipping tax exemption starting on jan 1 2018 the tax cuts and jobs act tcja doubled the estate tax exemption to 11 2 million for singles and 22 4 million for married couples but only for 2018 through 2025 the exemption level is indexed for inflation the 40 top tax rate remains in place this act expires on jan 1 2026 pushing the exemptions back to their pre act amounts unless congress extends them 