Wealthy grandparents have a unique opportunity this year to give their grandchildren gifts of substantial value without incurring any gift tax. This is a huge savings opportunity!—so why aren’t more people taking advantage of it?

Part of the reason may be lack of awareness. Everyone knows about the Bush administration’s year-long repeal of the estate tax, but very few people seem to be aware that the Bush tax cuts included a year-long lapse of the generation-skipping transfer (GST) tax as well. According to this article in Reuters, “generous grandparents could give away $3.5 million without paying the [GST] tax” during 2010.

But before you call the grandkids with the good news, consider whether or not you feel comfortable giving them such a large sum outright. If your grandkids are still young (and not yet responsible about money and finances) you may not want them having such a large sum to play with; and unfortunately, giving the gift in trust is not an option in this case. “To take full advantage of the GST tax break, assets should be transferred directly to beneficiaries and not to a trust. Money placed into a trust may lead to taxes when distributions are made later on.”

If your grandchildren are responsible adults, and if you’ve been considering giving them a monetary gift anyway, this lapse in the generation-skipping transfer tax could be just the push you need. Talk to your attorney or financial advisor about your gift-giving options.