Generation Skipping Transfer Tax

Which of the following transfers would most likely trigger the Generation-Skipping Transfer (GST) Tax, assuming the applicable exemptions have already been fully used?

A grandmother gifts $18,000 to her grandson’s 529 college savings plan.
A father transfers $10 million to his daughter as part of his estate plan.
A grandfather creates a trust that distributes $2 million directly to his granddaughter, bypassing his living children.
A mother names her son as the sole beneficiary of her $3 million life insurance policy.

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C is the answer.

The GST tax applies when a transfer skips a generation — typically from a grandparent to a grandchild — and the amount exceeds the available GST exemption. In this case, the trust distributes assets directly to the granddaughter, skipping over the grandfather's children (the intermediate generation), which is a classic example of a generation-skipping transfer. Assuming the GST exemption has been used, this transfer would trigger the tax. The other options involve direct transfers to children or gifts that may fall under the annual exclusion limits or non-GST taxable scenarios.

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