For centuries, generation skipping has been utilized by wealthy property owners and those lacking confidence in succeeding generations to manage and conserve family wealth, at least to the extent allowed by the rule against perpetuities. Until 1976, the U.S. federal estate and gift tax system did not take particular note of generation skipping as property owners were free to establish generation skipping arrangements with the usual federal estate or gift tax consequences as to the transferor, but with no further transfer tax consequence until gift by or death of the holders of the remainder interest. The Tax Reform Act of 1976 imposed a complex generation skipping tax that proved to be highly controversial and allegedly unworkable. That legislation was amended substantially in 1986 to create a generation skipping transfer tax.

Under the Tax Reform Act of 1986, generation skipping transfers are subject to tax at a flat rate equal to the maximum federal estate and gift tax rate (55 percent through 1992).