What is a generation-skipping transfer (GST)?

A generation-skipping transfer (GST) specifically refers to a transfer of property or assets to a beneficiary who is at least two generations younger than the donor, such as a grandchild or a great-grandchild. This concept is particularly important in the context of estate and gift tax law because it allows individuals to bypass the immediate children in a generational lineage, thus impacting how estate taxes are applied and calculated.

By utilizing GSTs, a donor can effectively reduce the taxable estate and the subsequent tax burden that would typically apply if the assets were passed directly to the children first. This strategy can offer tax advantages, as transfers to individuals two generations removed may be subject to different tax limitations and exemptions.

The other options do not accurately define what constitutes a generation-skipping transfer. Transfers between siblings don't qualify as they are within the same generation. A transfer to any beneficiary, regardless of their generational status, does not align with the specific definition of GSTs. Additionally, while some transfers may be exempt from tax, not all generation-skipping transfers are exempt; they specifically face their own tax rules under the GST tax system.