What Are the Generation Assignment Rules of IRC 2651?

The Generation-Skipping Transfer (GST) tax is a federal tax on property transferred to a person two or more generations younger than the individual making the gift or leaving the inheritance. This tax exists to prevent families from avoiding estate taxes for a generation by giving assets directly to grandchildren instead of children. The GST tax currently has a high exemption amount, but this is scheduled to be reduced by roughly half at the start of 2026, causing the tax to apply to a broader range of estates.

The core of this tax law involves determining who belongs to which generation. The answer is found in the guidelines of Internal Revenue Code (IRC) Section 2651. These rules are the foundation for identifying a “skip person”—the term for a beneficiary who is at least two generations below the transferor.

Assigning Generations for Family Members

The primary method for assigning generations is based on family lineage. For any descendant of the transferor’s grandparents, the generation is determined by comparing the number of generations between that individual and the grandparent with the number of generations between the transferor and that same grandparent. For instance, the transferor’s children are one generation below the transferor, and their grandchildren are two generations below. This rule extends to all lineal descendants and collateral relatives like nieces and nephews.

A legally adopted individual is treated for all GST tax purposes as a child of the adopting parent, placing them in the first generation below that parent.

Spouses and former spouses of the transferor are always assigned to the transferor’s generation, regardless of any age difference. Similarly, the spouse or former spouse of a lineal descendant is assigned to the same generation as that descendant. For example, a son’s wife is considered to be in the son’s generation, which is one generation below the transferor.

Assigning Generations for Unrelated Individuals

For individuals who are not lineal descendants of the transferor’s grandparents, generation assignment is based on an age-based system. Under these rules, an individual born not more than 12.5 years after the transferor is assigned to the same generation. A person born more than 12.5 years but not more than 37.5 years after the transferor is placed in the first generation below the transferor. For example, if a 70-year-old transferor gives a gift to a 50-year-old friend, that friend is considered part of the first younger generation.

Subsequent generations are marked by 25-year increments. An individual born more than 37.5 years but not more than 62.5 years after the transferor is assigned to the second generation below, making them a skip person. This pattern continues, with a new generation being established for each additional 25-year period.

The Predeceased Ancestor Rule

An exception to the standard generation assignment rules is the predeceased ancestor rule. This provision provides relief when a child predeceases their parent, preventing what would otherwise be a generation-skipping transfer.

The rule applies when an individual’s parent, who is a lineal descendant of the transferor, is deceased at the time of the transfer. In this scenario, the individual is “moved up” to the generation of their deceased parent. For example, if a grandparent makes a transfer to their grandchild after the grandchild’s parent has already passed away, the grandchild is moved up to their deceased parent’s generation. The grandchild is then treated as being only one generation below the grandparent.

This exception depends on the timing of the parent’s death, as they must be deceased when the transfer is first subject to gift or estate tax. The rule also applies to transfers to collateral heirs, such as a grandniece whose parent is deceased.

Generation Assignment for Entities

Transfers are often made to entities such as trusts, estates, partnerships, or corporations. In these cases, a “look-through” rule determines the generation assignment. The entity itself is not assigned a generation; instead, the tax code looks through the entity to the ultimate beneficiaries.

The generation assignment for a transfer to an entity is determined by the generation assignments of the individuals who hold a beneficial interest in the property. The transfer is treated as if made directly to the beneficiaries, and their generations are determined using the standard rules.

A trust can be classified as a skip person if all individuals with a present interest in the trust are skip persons. Alternatively, a trust is a skip person if no one has a present interest and all future distributions must be made to skip persons.