What Is a GST Exemption? 2026 Amount, Allocation, and Form 709

The generation-skipping transfer tax exemption is the per-person amount you can transfer to grandchildren or later generations before a 40% federal tax kicks in. For 2026, the GST exemption is $15 million per person, matching the basic exclusion amount set by the One, Big, Beautiful Bill Act signed on July 4, 2025.¹ Unlike the estate and gift tax exclusion, the GST exemption is not portable between spouses. If a spouse dies without using it, that $15 million disappears.

Transfers That Use Your GST Exemption

Three kinds of transfers can trigger the GST tax and consume exemption:²

A direct skip is a transfer straight to a skip person or to a trust whose beneficiaries are all skip persons. Handing cash to a grandchild is the plainest example. The transferor pays the tax.
A taxable distribution is a trust distribution to a skip person. The beneficiary pays.
A taxable termination occurs when an interest in a trust ends and only skip persons remain. A parent’s income interest in a trust ends at death, and the assets belong to the grandchildren from that point forward. The trustee pays.

Any transfer that exceeds your remaining exemption is taxed at the maximum federal estate tax rate of 40%.³

Who Counts as a Skip Person

A skip person is someone at least two generations below you on your family tree, such as a grandchild or great-grandchild.⁴ Your children are one generation below you, so they are non-skip persons. A trust is itself a skip person if every beneficiary with an interest in it is a skip person.

For recipients outside your family, generation is measured by birth date. Someone born more than 37½ years after you is treated as two generations below and counts as a skip person.⁵

The Predeceased Parent Exception

If your child dies before you make a transfer (or before it becomes subject to estate or gift tax), your grandchildren through that deceased child move up one generation for GST purposes.⁵ They are no longer skip persons, and the GST tax does not apply.

Timing controls the result. If you funded a trust while your child was alive and the child later dies, the grandchildren in that trust do not retroactively lose their skip-person status. The exception also reaches collateral relatives like nieces and nephews, but only when the transferor has no living lineal descendants at the time of the transfer.

The 2026 Exemption Amount

The GST exemption equals the basic exclusion amount for estate and gift tax. For 2026, that is $15 million, with inflation adjustments beginning in 2027.⁶ The One, Big, Beautiful Bill Act made the $15 million figure permanent (indexed for inflation) in place of the temporary Tax Cuts and Jobs Act amount that was set to expire at the end of 2025.¹

Because the same pot funds the gift, estate, and GST exclusions, exemption you allocate to a lifetime gift reduces what is left at death.⁷ Once allocated to a particular transfer, the allocation is irrevocable.

Why Married Couples Can’t Rely on Portability

The estate and gift tax exclusion is portable: when one spouse dies, any unused portion transfers to the survivor. The GST exemption is not. If the first spouse dies without allocating their $15 million, it is gone. The surviving spouse still has only their own $15 million.

A married couple can collectively shelter up to $30 million from the GST tax, but only if both spouses actually put their exemptions to work during life or at death, typically through trust structures. Treating the GST exemption the way portability lets you treat the estate tax exclusion is a $15 million error.

Gifts That Don’t Use Any Exemption

Some transfers to skip persons avoid GST tax without touching your $15 million. The 2026 annual gift tax exclusion is $19,000 per recipient.¹ A direct skip that qualifies as a nontaxable annual-exclusion gift automatically carries an inclusion ratio of zero, meaning no GST tax and no exemption consumed.⁸

Direct gifts to a grandchild qualify easily. Trust gifts are stricter. For a trust gift to get the GST annual exclusion, the trust must benefit only one skip person during that person’s lifetime, and the trust assets must be includible in that beneficiary’s estate if the trust has not fully distributed before they die.⁸ Payments made directly to a school for tuition or to a medical provider for care are excluded from gift tax entirely and do not trigger GST tax either.

Automatic Allocation and When To Opt Out

The IRS does not wait for you to allocate exemption. For lifetime direct skips, any unused GST exemption is automatically allocated to the transferred property up to its fair market value.⁹ The same automatic rule applies to indirect skips, meaning gifts to trusts that could eventually benefit skip persons. At death, whatever exemption the executor has not allocated is spread proportionally, first to death-time direct skips, then to trusts that might later produce taxable terminations or distributions.¹⁰

Automatic allocation helps when every transfer benefits skip persons. It hurts when you are funding a trust that will not ultimately reach grandchildren, because the rules waste exemption you could have used elsewhere. To opt out for a direct skip, describe the transfer and the extent of the opt-out on a timely filed Form 709.¹⁰ For an indirect skip, attach a separate statement to Form 709 identifying the trust and stating that you elect out. After the filing deadline passes without an opt-out, the automatic allocation is locked in.

Reporting on Form 709

Exemption allocations get reported on IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.¹¹ File it even if no tax is due; the return is what creates the record of how you have used your exemption.

Each transfer entry requires your information, the recipient’s information, a description of the property (CUSIP numbers for securities, legal descriptions for real estate), and the fair market value on the transfer date.¹² Valuation discounts for lack of marketability, minority interests, or fractional real estate interests have to be disclosed on the return, along with the income-tax basis that would apply on sale. You then specify the exact dollar amount of exemption allocated to each gift.

Form 709 is due April 15 of the year after the gift. A six-month extension to October 15 is available on Form 8892, and an existing extension of your income tax return automatically extends Form 709 as well.¹² Completed returns go to the Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. Late filing when tax is owed brings a penalty of 5% of the unpaid tax per month, capped at 25%, and interest runs from the original due date on any unpaid balance.

Fixing a Missed Allocation

Missing an allocation deadline is common and expensive. As of May 2024, the route to late-allocation relief is the IRS private letter ruling program under the regulations for Section 2642(g)(1).¹³ You must show that the transferor or executor acted reasonably and in good faith and that granting the allocation will not harm the government’s interests. The request calls for detailed affidavits about what happened, why the allocation was missed, and what any tax professional did. The IRS weighs whether the transferor intended to allocate exemption, whether reliance on a professional was reasonable, and whether the request looks like an attempt to use hindsight. An automatic six-month extension covers certain situations; the broader path is a full private letter ruling with IRS user fees.

The Reverse QTIP Election

Non-portability creates a specific problem with marital trusts. When assets pass to a Qualified Terminable Interest Property (QTIP) trust for the surviving spouse, the surviving spouse is normally treated as the transferor for GST purposes. Only the surviving spouse’s exemption can then protect those assets when they eventually reach grandchildren.

A reverse QTIP election reverses that. The executor of the first spouse’s estate elects to treat the deceased spouse as the transferor for GST purposes on the QTIP trust property, while the marital deduction still applies for estate tax. The first spouse’s GST exemption goes to work on the QTIP assets, and the surviving spouse’s exemption stays free for other transfers. For families with significant wealth flowing through marital trusts, skipping this election wastes the first spouse’s entire GST exemption.

1
Internal Revenue Service. What’s New – Estate and Gift Tax
2
Office of the Law Revision Counsel. 26 USC 2612 – Taxable Termination; Taxable Distribution; Direct Skip
3
Office of the Law Revision Counsel. 26 USC 2641 – Applicable Rate
4
Office of the Law Revision Counsel. 26 USC 2613 – Skip Person and Non-Skip Person Defined
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Office of the Law Revision Counsel. 26 USC 2651 – Generation Assignment
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Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
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Office of the Law Revision Counsel. 26 USC 2631 – GST Exemption
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Office of the Law Revision Counsel. 26 USC 2642 – Inclusion Ratio
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Office of the Law Revision Counsel. 26 USC 2632 – Special Rules for Allocation of GST Exemption
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eCFR. 26 CFR 26.2632-1 – Allocation of GST Exemption
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Internal Revenue Service. About Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
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Internal Revenue Service. Instructions for Form 709 (2025)
13
Federal Register. Relief Provisions Respecting Timely Allocation of GST Exemption and Certain GST Elections