The formulas
- Exemption allocated is capped at $15,000,000 (2026) less exemption used on earlier transfers
- Applicable fraction = exemption allocated / (value - death taxes recovered - charitable deduction), three decimals
- Inclusion ratio = 1 - applicable fraction (not below zero)
- Applicable rate = 40% x inclusion ratio
- GST tax = taxable amount x applicable rate
How it works
Section 2641 sets the GST rate as the maximum estate tax rate times the inclusion ratio. Section 2642 defines the inclusion ratio as one minus the applicable fraction: the GST exemption allocated over the value transferred, reduced by death taxes recovered and any charitable deduction. A direct skip that is a nontaxable gift under the annual exclusion has an inclusion ratio of zero, with a narrow rule for trusts.
Rev. Proc. 2025-32 states the GST exemption for 2026 is $15,000,000 under the One Big Beautiful Bill Act, adjusted for inflation after 2026. Allocating enough exemption to bring the inclusion ratio to zero makes the transfer, and later distributions from a trust, free of GST tax.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
What is the 2026 GST exemption?
$15,000,000 per person, the same as the basic exclusion amount.
Who is a skip person?
A person two or more generations below the transferor, such as a grandchild, or a trust whose interests are held only by skip persons.
Do annual exclusion gifts to a grandchild use exemption?
An outright gift covered by the annual exclusion is a nontaxable gift with a zero inclusion ratio, so no exemption is needed. Gifts to trusts meet extra conditions first.
Sources
- 26 U.S.C. 2641, Applicable rate (LII)
- 26 U.S.C. 2642, Inclusion ratio (LII)
- IRS Rev. Proc. 2025-32, 2026 inflation-adjusted items (IRB 2025-45)
- IRS Instructions for Form 709 (2025)
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