Generation-Skipping Transfer Tax

The Act makes a number of changes to the generation-skipping transfer (GST) tax, which, to simplify things a bit, is an additional tax imposed on gifts and bequests to grandchildren and great-grandchildren whether outright or in trust. The 2001 legislation repealed the GST tax for 2010 only, but there was a lack of clarity as to the effect of that repeal. The recent Act should eliminate that uncertainty because it provides that the GST tax was in effect in 2010, but with a 0% tax rate. This means that any generation-skipping transfers that occurred in 2010 were tax-free, but that taxpayers could still take advantage of the various GST tax exemptions that could reduce or eliminate the tax in future years.

Going forward, the Act aligns the GST tax with the reformed estate and gift taxes. In 2011 and 2012, the GST exemption is increased to $5.0 million and the tax rate is 35%. In 2013, the GST tax, like the estate and gift taxes, will revert to a $1.0 million exemption and a 55% tax rate.