What it is
A generation skipping trust, often called a GST trust or dynasty-style trust, is a trust set up so that assets can benefit grandchildren or more remote descendants, sometimes while also allowing children to receive distributions under defined terms. The trust document controls who benefits, when, and under what conditions.
The "skipping" refers to the federal generation-skipping transfer (GST) tax, a separate tax layered on top of estate and gift tax. It generally applies to certain transfers to people two or more generations below the transferor. Each person has a GST exemption, and the amount changes over time, so always confirm current figures with a professional.
Whether a trust is actually protected from GST tax depends on how it is drafted, how it is funded, and whether the transferor's GST exemption is properly allocated to it, typically reported on a gift tax return. Mistakes in allocation or reporting can have lasting consequences, which is why careful documentation matters.
How it’s traditionally been approached
Families have traditionally used these trusts to pass wealth across multiple generations in an organized way, rather than having the same assets potentially exposed to estate tax at each generation's death. The appeal is often long-term continuity and stewardship.
They have also been used to add structure around how and when beneficiaries receive assets. Trustees, distribution standards, and spendthrift-type provisions are common features, and some families value the added layer of protection and governance these provisions may offer.
Funding approaches vary. Some people use lifetime gifts, some use provisions in a will or revocable trust at death, and others pair a GST trust with an irrevocable life insurance trust or other planning vehicles. State trust law differs, including how long a trust may last, so the choice of governing state can matter.
How the right tax strategist may help
The right tax strategist, working alongside an estate attorney, may help you understand whether a generation skipping trust fits your family's goals at all. For many families, the exemption levels and their own circumstances make the question more nuanced than it first appears.
A first conversation is generally about your family structure, the kinds of assets involved, your goals for children and grandchildren, and how any transfers would interact with estate, gift and GST rules. Expect questions about existing documents, prior gifts, and whether you have filed gift tax returns before.
Useful questions to ask: How would GST exemption be allocated and reported? What are the tradeoffs of making this trust irrevocable? Who would serve as trustee, and what happens if circumstances change? How does this coordinate with my other planning? What are the ongoing administration and compliance requirements? What would a conservative approach look like versus a more aggressive one?
The bigger picture
Decisions about multi-generational wealth are rarely only about taxes. They touch on values, family relationships, and the legacy you hope to leave. Many people feel more at ease when they have talked openly with loved ones about their intentions, rather than leaving heirs to guess.
Giving up control of assets through an irrevocable trust can bring both relief and unease. Taking time, asking questions, and working with a team you trust may support your peace of mind. If the emotional side feels heavy, a wellness or counseling resource through Providers.plus may be one helpful avenue among many.
Keep in mind
- Generation skipping trusts are generally irrevocable, so you may be giving up flexibility and control; understand this before moving forward.
- Exemption amounts and transfer tax rules change by statute, so confirm current law with your own CPA, tax attorney or licensed financial advisor.
- Avoid aggressive or heavily promoted schemes, including listed transactions and syndicated conservation easements; sound planning rests on economic substance and thorough documentation.
- Trusts carry ongoing costs, trustee responsibilities and possible income tax consequences, and outcomes are never guaranteed.
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Plan your exit at Exit Optimization →Frequently asked questions
What is a generation skipping trust?
A generation skipping trust is a trust designed to benefit grandchildren or other descendants more than one generation below the person who creates it. It is usually structured with the federal generation-skipping transfer tax in mind. Whether it suits you depends on your goals and circumstances, so consult your own attorney and tax professional.
What is the generation skipping transfer tax?
The generation-skipping transfer (GST) tax is a federal tax that can apply to certain transfers to people two or more generations below the transferor, in addition to estate or gift tax. A GST exemption exists, but the amount changes over time. Confirm the current rules with a qualified professional.
Is a generation skipping trust irrevocable?
Generally, yes. These trusts are typically irrevocable so that assets are treated as removed from your estate and the GST exemption can be applied. That means you usually cannot easily change terms or take assets back, so it is important to understand the tradeoffs first.
Who should consider a generation skipping trust?
They are most often discussed by families with significant wealth who want to plan across multiple generations. Many households may not need one, depending on the size of their estate and current exemption levels. A CPA or estate attorney can help evaluate whether it is relevant.
How is a generation skipping trust funded?
A trust can be funded through lifetime gifts or through a will or other documents at death. Each approach has different gift, estate and GST reporting implications. Proper allocation of GST exemption and accurate return filing are important parts of the process.
How can a tax strategist help with a generation skipping trust?
A tax strategist may help you model how the trust interacts with your broader estate, gift and income tax picture, and coordinate with your attorney on drafting and reporting. They may also help you steer clear of aggressive promoted schemes. They cannot promise any particular tax result.
Educational resource. The Silent Tax shares general information and connects people with independent tax strategists. It is not professional advice. Talk with a qualified professional about your own situation.