2018 GST Exemption
For 2018, the GST Exemption figures are $11,180,000 (Lifetime GST exemption) and 40% (Top GST tax rate).
Effective 2018-01-01Source: 2018 Instructions for Form 709 (IRS)Verified 2026-09-03
Compared with 2017
| Item | 2017 | 2018 | Change |
|---|---|---|---|
| Lifetime GST exemption | $5,490,000 | $11,180,000 | +$5,690,000 (+103.6%) |
| Top GST tax rate | 40% | 40% | +0% (+0.0%) |
Who it applies to
Donors who make generation-skipping transfers subject to the federal gift and GST taxes and who file IRS Form 709 to allocate their lifetime GST exemption.
What changed this year, and why
For 2018, the lifetime GST exemption is $11,180,000 per donor. This amount, set by the IRS, represents the total exemption each individual may allocate during life to generation-skipping transfers reported on Form 709.
Common questions
- What is the GST exemption used for?
- The GST (generation-skipping transfer) exemption is a lifetime amount a donor can use to shield transfers to skip persons (such as grandchildren) from the federal GST tax. Each donor may allocate up to the full exemption amount across their lifetime.
- Is the GST exemption separate from the gift and estate tax exemption?
- No. The $11,180,000 is a single lifetime amount shared with the gift and estate tax exclusion. Once any portion is used during life, less remains available for estate-tax purposes.
Which transfers the GST tax reaches
The GST tax applies only to a specific kind of transfer called an "inter vivos direct skip," which is a gift made while the donor is alive. For such a transfer to be subject to the GST tax, it must meet all three of the following conditions: it must be subject to the federal gift tax (meaning it is required to be listed on Schedule A of Form 709), it must involve an interest in property, and it must be made to a "skip person" - someone who is two or more generations below the donor, such as a grandchild. Transfers that take effect at death (testamentary direct skips) and taxable distributions or taxable terminations from trusts are subject to the GST tax under different rules and are not reported on Form 709. The donor’s lifetime GST exemption - $11,180,000 for 2018 - can be applied to these inter vivos direct skips to shelter them from the tax.
The GST tax you must report on Form 709 is that imposed only on inter vivos direct skips. An inter vivos direct skip is a transfer that is: • Subject to the gift tax, • Of an interest in property, and • Made to a skip person.
2018 Instructions for Form 709 (IRS)
The exemption allocates itself to direct skips unless you elect out
When a donor makes an inter vivos direct skip - a lifetime transfer to a skip person that is subject to gift tax - the IRS does not require the donor to file a separate form specifically allocating GST exemption to that transfer. Instead, the system automatically applies a portion of the donor's unused GST exemption to the transferred property. The automatic allocation uses whatever exemption the donor has not yet applied to other transfers. The automatic allocation applies unless the donor affirmatively elects out of it. To elect out, the donor must file Form 709 and attach a statement that clearly describes the transaction and states the extent to which the automatic allocation should not apply. There is also a way to prevent automatic allocation by reporting the direct skip on a timely filed Form 709 and paying the GST tax on the transfer. The lifetime GST exemption for 2018 is $11,180,000.
In the case of inter vivos direct skips, a portion of the donor's unused exemption is automatically allocated to the transferred property unless the donor elects otherwise.
2018 Instructions for Form 709 (IRS)
Allocating the exemption is a one-way decision
Once you apply your GST exemption to a transfer - whether automatically by the system or by an affirmative allocation on a tax return - you cannot undo that decision. The rule states plainly that an allocation is irrevocable. This means you cannot later reclaim exemption that you have already used, reallocate it to a different transfer, or change the amount you assigned. The decision is final as of the moment the allocation takes effect. Because of this rule, donors should be deliberate when deciding how much of their $11,180,000 lifetime GST exemption to apply to any given transfer. You should consider not only the current transfer but also future transfers you may wish to shelter, since any exemption used now reduces what remains available later.
The executor can apply the exemption on Form 706 to transfers taking effect at death. An allocation is irrevocable.
2018 Instructions for Form 709 (IRS)
Allocating to a transfer not reported on this return
If you want to allocate GST exemption to a transfer that is not reported on the Form 709 you are currently filing - such as a transfer reported on a prior year's return or a late allocation - you cannot do so by simply filling in a box on the form. Instead, you must attach a separate statement to Form 709 and title it "Notice of Allocation." The notice must include, for each trust or transfer involved: clear identification of the trust (including its EIN if known), the year the transfer was originally reported if this is a late allocation, the value of the trust assets at the effective date of the allocation, the amount of GST exemption you are allocating to each gift (or a statement that you are allocating exemption by a formula such as "an amount necessary to produce an inclusion ratio of zero"), and the inclusion ratio of the trust after the allocation. You then total all the exemption allocations shown on the notice and enter the sum on line 6 of Part 2 of Form 709.
To allocate your exemption to such transfers, attach a statement to this Form 709 and entitle it “Notice of Allocation.”
2018 Instructions for Form 709 (IRS)
A donor uses it during life, an executor uses it at death
Under the 2018 GST rules, a taxpayer who makes a gift during life (an inter vivos transfer) reports it on Form 709 and allocates GST exemption there. A taxpayer who transfers property at death uses the same exemption on Form 706. In either case, once the donor or executor allocates exemption to a transfer, the allocation cannot be undone. This is why it matters to keep a clear record of which exemption was applied where, so that future increases in the exemption amount are allocated to the right transfers and not wasted on ones that already had enough coverage.
The donor can apply this exemption to inter vivos transfers (that is, transfers made during the donor's life) on Form 709. The executor can apply the exemption on Form 706 to transfers taking effect at death. An allocation is irrevocable.
2018 Instructions for Form 709 (IRS)
A higher exemption in a later year does not reach back to cover an earlier transfer
Under the 2018 GST rules, the lifetime exemption is $11,180,000, but a higher exemption in a later year cannot be applied retroactively to transfers made before that year. The IRS example illustrates this: a donor who made $1,750,000 in generation-skipping transfers through 2005 allocated all $1,500,000 of the exemption available at that time. When the donor makes a $2,000,000 transfer in 2018, the donor can allocate $2,000,000 of the 2018 exemption to that transfer but cannot use the $7,680,000 of unused 2018 exemption to cover the earlier, pre-2018 transfers. This forward-only rule means that planning when to make transfers matters: the exemption in effect in the year a transfer is made is what applies to it.
In general, each annual increase can only be allocated to transfers made (or appreciation occurring) during or after the year of the transfer. Example. A donor made $1,750,000 in GSTs through 2005, and allocated all $1,500,000 of the exemption to those transfers. In 2018, the donor makes a $2,000,000 taxable generation-skipping transfer. The donor can allocate $2,000,000 of exemption to the 2018 transfer but cannot allocate the $7,680,000 of unused 2018 exemption to pre-2018 transfers.
2018 Instructions for Form 709 (IRS)
Unused exemption does not just sit there, it gets allocated automatically
Under the 2018 GST rules, unused GST exemption does not remain idle. For inter vivos direct skips - gifts made during life to skip persons - a portion of the donor's unused exemption is automatically allocated to the transferred property unless the donor affirmatively elects out. To opt out, the donor must file Form 709 and attach a statement clearly describing the transaction and the extent to which the automatic allocation should not apply. Alternatively, reporting the direct skip on a timely filed Form 709 and paying the GST tax on the transfer also prevents the automatic allocation. With a lifetime GST exemption of $11,180,000 for 2018, this automatic mechanism helps ensure that available exemption is applied to transfers rather than wasted, though a donor who prefers to allocate exemption elsewhere can override it through the election process.
In the case of inter vivos direct skips, a portion of the donor's unused exemption is automatically allocated to the transferred property unless the donor elects otherwise. To elect out of the automatic allocation of exemption, you must file Form 709 and attach a statement to it clearly describing the transaction and the extent to which the automatic allocation is not to apply.
2018 Instructions for Form 709 (IRS)
A gift under the annual exclusion is not automatically safe from GST tax
Under the federal GST rules, a transfer to a trust that does not trigger gift tax - and therefore does not owe GST tax when reported on Form 709 - can still become subject to the GST tax at some point in the future. This rule applies even when the transfer is below the annual exclusion amount, which for 2018 is the $15,000 annual exclusion. Because the GST tax may arise later, a donor may want to allocate GST exemption to the transfer on the current return or on a Notice of Allocation, rather than waiting. Without such an allocation, distributions from the trust to skip persons in future years could be subject to GST tax. For the 2018 tax year, the lifetime GST exemption is $11,180,000, and applying any portion of it to the transfer can protect against that future liability.
Certain transfers, particularly transfers to a trust, that are not subject to gift tax and are therefore not subject to the GST tax on Form 709 may be subject to the GST tax at a later date. This is true even if the transfer is less than the $15,000 annual exclusion.
2018 Instructions for Form 709 (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2018 Instructions for Form 709 (IRS)
- Lifetime GST exemption
Every donor is allowed a lifetime GST exemption. The amount of the exemption for 2018 is $11,180,000.
- Top GST tax rate
The top rate for gifts and generation- skipping transfers remains at 40%.