The generation-skipping transfer tax is a tax that is imposed on the transfer of assets to beneficiaries who are two or more generations below the transferor.

This tax is designed to prevent wealthy individuals from bypassing a generation of heirs and transferring assets directly to their grandchildren or great-grandchildren in order to avoid paying estate taxes.

The generation-skipping transfer tax applies in addition to other estate and gift taxes, and it can be quite substantial, with rates as high as 40%. There are certain exemptions and exclusions that may apply to reduce the impact of this tax, such as the annual gift tax exclusion and the lifetime exemption.

It is important for individuals who are considering making transfers to younger generations to consult with a tax professional to understand the potential impact of the generation-skipping transfer tax and to develop a tax-efficient transfer plan.