Generation Skipping Tax: Use It or Lose It!

The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily doubled the gift, estate, and generation-skipping transfer (GST) tax exemption, allowing individuals in 2024 to transfer up to $13.61 million tax-free. However, this exemption is set to expire on December 31, 2025, potentially reducing it to around $5 million, adjusted for inflation. This creates a limited window for high-net-worth individuals to transfer wealth without incurring significant taxes. The IRS has clarified that gifts made before 2026 using the higher exemption won’t be penalized when the exemption decreases, emphasizing a “use it or lose it” opportunity.

To maximize this benefit, estate planners recommend strategies such as dynasty trusts—long-term, multi-generational trusts that preserve wealth while avoiding estate taxes indefinitely—and grantor trusts, which allow the grantor to pay income taxes on trust earnings, enabling tax-free growth for beneficiaries. By structuring irrevocable trusts and carefully selecting the state of situs, individuals can shield assets from future transfer taxes while maintaining flexibility in estate planning. Additionally, tax-friendly states like South Dakota and Delaware allow trusts to last in perpetuity, further enhancing wealth preservation across generations.

With the TCJA’s sunset approaching, individuals must act swiftly to take advantage of this historic exemption before it significantly decreases. Working with tax and financial advisors ensures the optimal use of these exemptions while maintaining the grantor’s financial security. Thoughtful planning, including trust structures and strategic wealth transfers, can help families secure financial legacies and mitigate future tax burdens.

For more information see Meredith Walsh and Brittany Cook “Generation Skipping Tax: Use It or Lose It!” ABA Probate and Property Journal, March, 2025.