GST Exemption

The GST exemption is the amount an individual can allocate under United States federal law to protect generation-skipping transfers from GST tax. It can be allocated to a direct transfer or to a trust that may benefit grandchildren or later generations. When properly allocated, it can reduce or eliminate GST tax on covered transfers and future trust growth, subject to the trust's tax status and continued compliance.

The exemption is related in amount to the federal gift and estate tax exemption, but it is a separate allocation. Using gift tax exemption does not automatically prove that GST exemption was allocated as intended. Federal automatic-allocation rules can apply to some transfers, while elections may be available or required to obtain a different result.

Why it matters for family offices

The stakes grow over time. A missed allocation to a long-lived trust may expose later appreciation or distributions, while an unnecessary allocation can consume exemption that was needed elsewhere. The office therefore maintains a donor-specific schedule showing transfers, tax returns, allocations, elections, and each trust's inclusion ratio.

Exemption amounts and law can change, so family offices avoid relying on a static planning deck. Qualified United States tax advisers determine the filing and allocation, including whether a timely or late allocation is available and how assets should be valued. The office's contribution is complete records and implementation.

How it shows up in practice

Suppose a parent funds two trusts in the same year, one for children only and another that can continue for grandchildren. Both transfers use part of the parent's gift tax exemption. The family office sends the deeds, valuations, and funding evidence to the US tax adviser, who decides how GST exemption should be allocated and reports the treatment on the appropriate return.

Years later, the second trust has grown substantially. Before making a distribution to a grandchild, the trustee asks for its GST status. The office produces the filed return and allocation schedule rather than assuming the trust name proves exemption. That evidence lets the adviser determine whether the distribution is covered and prevents the same exemption from being counted twice across structures.