The generation skipping transfer tax (GST) is a second transfer tax imposed by federal law upon gratuitous transfers to individuals who are two or more generations younger (or thirty-seven and one-half years younger in certain circumstances).

Currently, each individual’s total allocable GST Exemption is the same amount as the gift and estate tax exemption - $5.45 million in 2016. While the Tax Code directs the automatic allocation of remaining gift and estate tax exemption to gifts as they are made, a transferor may elect out of the automatic allocation of GST Exemption to gifts made to trusts or directly to donees with respect to whom the GST would ordinarily apply.

Other methods to avoid the allocation of GST Exemption at the time of the gift is to leave sufficient power in the hands of the transferor to prevent the GST allocation at the time of the gift or to delay (in certain circumstances) allocation of the GST Exemption until the transferor dies.

Planners may find these techniques useful when transfers are being made of non-appreciating assets or, as now, when equity markets are losing value, because the gift will be valued for GST purposes at the time the GST is allocated.