What is the Generation-Skipping Transfer Tax? | Denver Estate Planning
When you plan for the future, you want your hard-earned savings to care for the people you love most. Many families hope to pass wealth directly down to grandchildren, bypassing children entirely. To keep people from dodging estate taxes across generations, the federal government created a rule known as the generation-skipping transfer tax (GST tax). This rule applies when assets pass to a "skip person," which is usually a grandchild or someone who is at least 37 and a half years younger than you.
Why the IRS Created the GST Tax
Estate taxes are designed to apply when wealth moves from one generation to the next. If you leave money straight to your grandchildren, your children skip taking legal ownership, which means the government misses out on collecting estate taxes at that middle level. The GST tax is meant to equal what the IRS would have collected if your children had inherited the assets first. The current GST tax rate sits at a flat 40 percent, matching the top federal estate tax rate.
Understanding Exemptions for Denver Families
Fortunately, most families do not have to worry about paying this extra tax thanks to generous federal exemptions. The GST tax exemption is currently unified with the federal estate tax exemption, meaning every person can pass a significant amount—roughly $15 million—to skip persons or a generation-skipping trust without paying any GST tax. Whether you enjoy hiking in the Rockies or cheering on the Denver Nuggets, securing your family’s financial legacy takes careful planning. If your estate plan was created years ago, it might be time for a review.
Protect Your Legacy Today
Navigating complex tax rules can feel overwhelming, but you do not have to figure it out alone. At The McKenzie Law Firm, LLC, we help families throughout the Denver metro area build smart, clear estate plans tailored to their goals. Call us today at 720-821-7604 or schedule a consultation with our Centennial team to get started.
The McKenzie Law Firm, LLC practices law exclusively in Colorado. This post is for general informational purposes only and does not constitute legal advice. Please consult a qualified attorney regarding your specific situation.
