The generation-skipping transfer tax is a separate federal tax on wealth that moves two or more generations down, so that a transfer which passes over the middle generation is not also passing over a round of tax. A tax is hereby imposed on every generation-skipping transfer (within the meaning of subchapter B) (26 U.S.C. 2601).
It sits in its own chapter of the Code. Subtitle B of title 26 carries chapter 11, the estate tax, at 26 U.S.C. 2001, chapter 12, the gift tax, at 26 U.S.C. 2503, and chapter 13, the tax on generation-skipping transfers, at 26 U.S.C. 2601. That separation is the point. One transfer can be reached by chapter 11 or chapter 12 and then reached again by chapter 13, and the direct-skip definition below is where the Code says so in as many words.
The Three Transfers the Chapter Taxes
The definition is a closed list of three. For purposes of this chapter, the term “generation-skipping transfer” means a taxable distribution, a taxable termination, and a direct skip (26 U.S.C. 2611(a)). Nothing outside those three is a generation-skipping transfer, however far down the family tree the money lands.
Direct Skip
For purposes of this chapter, the term “direct skip” means a transfer subject to a tax imposed by chapter 11 or 12 of an interest in property to a skip person (26 U.S.C. 2612(c)(1)). The gate word is “subject to”. A transfer that no estate or gift tax reaches at all is not a direct skip.
Taxable Distribution
For purposes of this chapter, the term “taxable distribution” means any distribution from a trust to a skip person, other than a taxable termination or a direct skip (26 U.S.C. 2612(b)). The exclusion in that clause is what stops one payment being counted twice.
Taxable Termination
For purposes of this chapter, the term “taxable termination” means the termination, by death, lapse of time, release of power, or otherwise, of an interest in property held in a trust unless immediately after such termination, a non-skip person has an interest in such property, or at no time after such termination may a distribution, including distributions on termination, be made from such trust to a skip person (26 U.S.C. 2612(a)(1)). The two carve-outs after the word “unless” are joined by “or”, so either one on its own keeps the termination outside the definition.
Who Is a Skip Person
Every one of the three definitions turns on the same phrase. For purposes of this chapter, the term “skip person” means a natural person assigned to a generation which is 2 or more generations below the generation assignment of the transferor, or a trust if all interests in such trust are held by skip persons, or a trust if there is no person holding an interest in such trust and at no time after such transfer may a distribution, including distributions on termination, be made from such trust to a nonskip person (26 U.S.C. 2613(a)). A non-skip person is defined by subtraction, as any person who is not a skip person (the same section, subsection (b)).
Generation assignment has its own section. Within the family it is counted through a common ancestor: an individual who is a lineal descendant of a grandparent of the transferor shall be assigned to that generation which results from comparing the number of generations between the grandparent and such individual with the number of generations between the grandparent and the transferor (26 U.S.C. 2651(b)(1)). Two equivalences are written into that counting rule, and the statute opens them with their own scope words: for purposes of this subsection, a relationship by legal adoption shall be treated as a relationship by blood, and a relationship by the half-blood shall be treated as a relationship of the whole-blood (the same section, subsection (b)(3)). A spouse never skips: an individual who has been married at any time to the transferor shall be assigned to the transferor’s generation (the same section, subsection (c)(1)).
Outside the family the statute switches to age. An individual who is not assigned to a generation by reason of the foregoing provisions of this section shall be assigned to a generation on the basis of the date of such individual’s birth with an individual born not more than 12½ years after the date of the birth of the transferor assigned to the transferor’s generation, an individual born more than 12½ years but not more than 37½ years after the date of the birth of the transferor assigned to the first generation younger than the transferor, and similar rules for a new generation every 25 years (26 U.S.C. 2651(d)). All three limbs matter, because it takes the third one to put an unrelated person two generations down rather than one.
There is also a relief rule where the middle generation has already died, and it is written for one purpose only. For purposes of determining whether any transfer is a generation-skipping transfer, if an individual is a descendant of a parent of the transferor, or of the transferor’s spouse or former spouse, and that individual’s parent who is a lineal descendant of the parent of the transferor, or of the transferor’s spouse or former spouse, is dead at the time the transfer from which an interest of such individual is established or derived is subject to a tax imposed by chapter 11 or 12 upon the transferor, and if there shall be more than one such time then at the earliest such time, such individual shall be treated as if such individual were a member of the generation which is 1 generation below the lower of the transferor’s generation or the generation assignment of the youngest living ancestor of such individual who is also a descendant of the parent of the transferor, or of the transferor’s spouse or former spouse, and the generation assignment of any descendant of such individual shall be adjusted accordingly (26 U.S.C. 2651(e)(1)). Note that the new assignment is set against the lower of two reference points, not simply one step up. Both lettered conditions have to hold, and the subsection shall not apply with respect to a transfer to any individual who is not a lineal descendant of the transferor, or of the transferor’s spouse or former spouse, if, at the time of the transfer, such transferor has any living lineal descendant (the same section, subsection (e)(2)).
How the Amount Is Worked Out
The computation is two factors. The amount of the tax imposed by section 2601 is the taxable amount, determined under subchapter C, multiplied by the applicable rate, determined under subchapter E (26 U.S.C. 2602).
The second factor is itself a product. For purposes of this chapter, the term “applicable rate” means, with respect to any generation-skipping transfer, the product of the maximum Federal estate tax rate and the inclusion ratio with respect to the transfer (26 U.S.C. 2641(a)). That first term is defined for this purpose as the maximum rate imposed by section 2001 on the estates of decedents dying at the time of the taxable distribution, taxable termination, or direct skip, as the case may be (the same section, subsection (b)). The top line of the section 2001 rate schedule reads, for an amount over $1,000,000, $345,800 plus 40 percent of the excess of such amount over $1,000,000 (26 U.S.C. 2001(c)).
The second half of that product is the planning variable. For purposes of this chapter, and except as otherwise provided in section 2642, the inclusion ratio with respect to any property transferred in a generation-skipping transfer shall be the excess, if any, of 1 over the applicable fraction determined for the trust from which such transfer is made, except that in the case of a direct skip it is the excess of 1 over the applicable fraction determined for such skip (26 U.S.C. 2642(a)(1)). Because it is one minus a fraction, an applicable fraction of one leaves an inclusion ratio of nothing, and multiplying by nothing is what a fully sheltered transfer looks like.
The numerator of that fraction is the amount of the GST exemption allocated to the trust, or in the case of a direct skip, allocated to the property transferred in such skip (the same section, subsection (a)(2)(A)). That is the join between the exemption and the rate, and it is why the allocation described next does the work.
The GST Exemption
The inclusion ratio is where planning happens, and the lever on it is the exemption. For purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption amount which may be allocated by such individual, or his executor, to any property with respect to which such individual is the transferor (26 U.S.C. 2631(a)). Any allocation under that subsection, once made, shall be irrevocable (the same section, subsection (b)).
The size of it is not set in chapter 13 at all. For purposes of subsection (a), the GST exemption amount for any calendar year shall be equal to the basic exclusion amount under section 2010(c) for such calendar year (the same section, subsection (c)). So the figure moves whenever the estate and gift figure moves. For calendar year 2026, the generation-skipping transfer exemption amount under section 2631(c) is equal to $15,000,000 (IRS, Rev. Proc. 2025-32).
The same revenue procedure explains why that number jumped, and it is the same amendment that moved the estate and gift figure: section 70106 of the OBBBA amends section 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for calendar year 2026 (IRS, Rev. Proc. 2025-32). The lifetime gift and estate side of that figure is worked through in gift tax exclusion.
Who Pays It, and Who Files
Liability is assigned by transfer type, not by who ends up better off. In the case of a taxable distribution, the tax imposed by section 2601 shall be paid by the transferee; in the case of a taxable termination or a direct skip from a trust, the tax shall be paid by the trustee; and in the case of a direct skip other than a direct skip from a trust, the tax shall be paid by the transferor (26 U.S.C. 2603(a)). Those are three separate cohorts, and a direct skip splits across two of them depending on whether a trust made it.
Where the money comes from has its own default. Unless otherwise directed pursuant to the governing instrument by specific reference to the tax imposed by this chapter, the tax imposed by this chapter on a generation-skipping transfer shall be charged to the property constituting such transfer (the same section, subsection (b)). A will that wants a different result has to say so about this tax by name.
The filing rule is delegated. The Secretary shall prescribe by regulations the person who is required to make the return with respect to the tax imposed by this chapter and the time by which any such return must be filed, and to the extent practicable such regulations shall provide that the person who is required to make such return shall be the person liable under section 2603(a) for payment of such tax, and that the return shall be filed, in the case of a direct skip other than from a trust, on or before the date on which an estate or gift tax return is required to be filed with respect to the transfer, and in all other cases on or before the 15th day of the 4th month after the close of the taxable year of the person required to make such return in which such transfer occurs (26 U.S.C. 2662(a)). Note the softener. The statute sets the pattern to the extent practicable and leaves the binding detail to the regulations.
Transfers the Chapter Leaves Out
Two exclusions sit in the definition itself rather than among the deductions, so the tax never reaches them. The term “generation-skipping transfer” does not include any transfer which, if made inter vivos by an individual, would not be treated as a taxable gift by reason of section 2503(e), relating to exclusion of certain transfers for educational or medical expenses (26 U.S.C. 2611(b)(1)). The cross-referenced rule is narrow and it is worth reading rather than assuming. For purposes of that subsection, the term “qualified transfer” means any amount paid on behalf of an individual as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or to any person who provides medical care, as defined in section 213(d), with respect to such individual as payment for such medical care (26 U.S.C. 2503(e)(2)). Tuition for a grandchild qualifies on the first limb only if it is paid as tuition to the school itself.
The second is an anti-double-charge rule with three conditions that all have to hold. The term does not include any transfer to the extent the property transferred was subject to a prior tax imposed under this chapter, and the transferee in the prior transfer was assigned to the same generation as, or a lower generation than, the generation assignment of the transferee in this transfer, and such transfers do not have the effect of avoiding tax under this chapter with respect to any transfer (26 U.S.C. 2611(b)(2)). Miss any one of the three and the exclusion does not apply.
Common Questions
One of the three defined events, and nothing else: a taxable distribution, a taxable termination, or a direct skip (26 U.S.C. 2611(a)). Each of the three is built on a skip person, so the practical trigger is property reaching someone two or more generations below the transferor, or a trust whose interests are held only by such people.
For calendar year 2026, the generation-skipping transfer exemption amount under section 2631(c) is equal to $15,000,000 (IRS, Rev. Proc. 2025-32). It tracks the basic exclusion amount under section 2010(c) by statute rather than by coincidence (26 U.S.C. 2631(c)).
Yes, for a direct skip. The definition of a direct skip requires a transfer subject to a tax imposed by chapter 11 or 12 (26 U.S.C. 2612(c)(1)), and the chapter 13 tax is then imposed on that same transfer (26 U.S.C. 2601). How the gift side is measured is set out in gift tax.
Not in the same way. Where the middle generation is dead at the relevant time, the beneficiary is moved up a generation for the purpose of deciding whether a transfer is a generation-skipping transfer, subject to the deceased-parent conditions and the collateral-heir limit in the same subsection (26 U.S.C. 2651(e)).
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a real block of its own trust and estate workpaper preparation through a trial task before anything client facing depends on it.
