Illustration of generation-skipping transfer tax and the ILIT trap — IRC section 2632 automatic allocation rules, Crummey powers, and GST exemption inclusion ratio

GST Tax and the ILIT Trap: Automatic Allocation Pitfalls

BySW Accounting admin 06/04/202606/04/2026

What is the generation-skipping transfer (GST) tax, and why do ILITs so often get it wrong? The GST tax (Internal Revenue Code Chapter 13) is a flat 40% tax imposed — on top of gift or estate tax — on transfers that “skip” a generation, such as gifts to grandchildren or to a dynasty trust….