Generation-Skipping Transfer Tax: Definition and How It Works in California

By Eric Ridley, attorney, Ridley Law. Updated September 2026.

The generation-skipping transfer tax is a federal tax on transfers to grandchildren or others two or more generations younger than the person making the transfer, imposed on top of estate or gift tax once transfers exceed the donor’s exemption. California has its own pick-up version of the tax, tied to a federal credit Congress has since phased out, so it collects nothing today.

How it works in California

For how this tax interacts with trust administration, see generation-skipping trust administration in California. The federal tax is imposed under 26 U.S.C. § 2601 on every generation-skipping transfer, and a “skip person” under § 2613 is generally someone assigned to a generation two or more levels below the person making the transfer, such as a grandchild.

Each person has a generation-skipping exemption equal to the same basic exclusion amount used for federal estate and gift tax, under 26 U.S.C. § 2631(c); current figures change from year to year and are covered at California Estate Planning Numbers 2026 rather than here.

California also has a state-level pick-up tax under Rev. & Tax. Code, § 16710, but that statute computes California’s tax as a share of a federal credit for state generation-skipping taxes that Congress eliminated. The state statute is still on the books; it simply produces no tax because the federal number it’s pegged to no longer exists.

Why it matters

For example, a grandparent sets up a trust that pays income to her children for life and then distributes what’s left to her grandchildren. Because the grandchildren are skip persons, that eventual distribution can trigger the federal generation-skipping tax in addition to any estate or gift tax already paid on the same money, unless the transfer fits within the available exemption.

Common mistakes

Assuming a trust for grandchildren avoids transfer tax because it skips a generation, when that skip is exactly what triggers this tax. Overlooking that the generation-skipping exemption is separate from, though tied to, the regular estate and gift tax exclusion, and has to be tracked and allocated on its own. Assuming California’s pick-up tax statute has simply been repealed, when it’s still in effect but produces no tax because of a change in federal law.

Related terms

• Irrevocable Life Insurance Trust (ILIT): one structure sometimes used together with generation-skipping planning.
• Portability: a related federal concept that applies to the estate and gift tax exclusion, not to the generation-skipping exemption.
• Marital Deduction: the separate rule that lets property pass to a spouse free of estate tax before generation-skipping issues arise.
• Lineal Descendants: the children, grandchildren, and further descendants the generation-skipping tax is concerned with.

Part of the California estate planning glossary. For the full treatment, see Generation-Skipping Trust Administration in California.