3 Common Questions About the GST

Jan 2, 2013

What is the GST?

GST stands for the generation skipping tax, a federally imposed tax that applies in situations where a grandparent leaves a gift to a grandchild or a great-grandchild. For example, if a grandparent decides to establish a trust for his granddaughter, that trust might be subject to the generation skipping transfer tax. However, the grandchild’s parent or parents must be alive at the time of the transfer. This is why it’s called the generation skipping transfer tax because instead of giving the gift directly to the child, the grandparent chooses to skip that generation and give it to the grandchild.

How does it work?

The GST is similar to both the estate tax and the gift tax. The estate tax applies after a person dies leaving behind an estate worth a certain value. Similarly, the gift tax applies when someone gives gifts over a certain value while the gift giver is still alive. The GST applies both to transfers made through gifts and through estates. This means it can function as both an estate tax and a gift tax.

How much is it?

That’s a difficult question to answer at the moment. Like the estate and gift taxes, the GST is likely to change within the next few months, or at least within the next year. However, also like the estate and gift taxes, the GST has an exemption limit. Any generation transferring gift of less than $5.12 million was not subject to the tax in 2012, meaning very few people have to worry about it.

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