What is the maximum age difference to avoid the generation-skipping transfer tax?

The correct answer is based on the current rules associated with the generation-skipping transfer (GST) tax, which is designed to impose a tax on transfers made to individuals who are more than one generation away from the transferor, typically grandchildren or unrelated persons. To avoid this tax, the law establishes a maximum age difference between the transferor and the transferee.

Under IRS regulations, to avoid triggering a GST tax, the beneficiary must be no more than 37.5 years younger than the transferor. This rule is in place to prevent individuals from circumventing estate tax rules by skipping generations and transferring wealth directly to grandchildren or beyond, potentially escaping taxation. Therefore, if the age difference exceeds 37.5 years, the transfer may be subjected to the generation-skipping transfer tax.

Being aware of this age threshold is essential for those involved in estate planning and for individuals who wish to structure their gifts or bequests while minimizing tax implications.