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Generation-Skipping Trust


A Generation-Skipping Trust (GST) is a type of legal arrangement that allows wealth to be transferred to a later generation while bypassing the immediate generation, typically to reduce estate and gift taxes. It involves establishing a trust to hold assets for the benefit of one’s grandchildren or later generations. The trust’s assets grow free of tax liabilities during the lifetime of the beneficiaries who are skipped, and taxes are deferred until the assets are distributed to the final beneficiaries.


The phonetics of the keyword ‘Generation-Skipping Trust’ is:/jen-uh-RAY-shun-SKIP-ing trəst/

Key Takeaways

  1. A Generation-Skipping Trust (GST) allows the transfer of assets to future generations (skipping a generation) without incurring estate or gift taxes.
  2. The main purpose of a GST is to minimize tax liabilities, preserve wealth, and provide maximum benefit to beneficiaries, often by avoiding direct distribution of assets to children or immediate heirs.
  3. There is a limitation on the amount of assets that can be transferred through a GST called the Generation-Skipping Transfer Tax exemption, which is periodically adjusted for inflation.


The term Generation-Skipping Trust (GST) is important in the realm of business and finance because it serves as an efficient wealth transfer strategy that aims to minimize or avoid potential estate tax liabilities for a family across multiple generations. By bypassing the direct transfer of assets to the children of the grantor and assigning them to the grandchildren (or even later generations), a GST can protect the assets from additional taxation that usually accompanies traditional inheritance transfers. By reducing the tax burden and safeguarding the family’s wealth, a properly structured Generation-Skipping Trust can guarantee financial security for the beneficiaries while providing the grantor with a degree of control over how, when, and under what conditions the assets are distributed, making it a valuable tool in estate planning.


A Generation-Skipping Trust (GST) is a strategic estate planning tool that aims to efficiently transfer wealth to bypass one generation and directly benefit subsequent generations, primarily grandchildren. The primary purpose of establishing a GST is to preserve and grow wealth within the family, while reducing potential estate and gift tax liabilities. It provides a mechanism for individuals to transfer significant assets to their grandchildren, without incurring the estate tax at each generation level. This allows for a more effective allocation of the grantor’s unified tax credit, and in turn, preserves the value of the inherited assets for future generations. In addition to the tax advantages, a Generation-Skipping Trust can also be tailored to support various objectives in terms of asset control and distribution. For instance, the trust might stipulate restrictions on the usage of funds, ensuring the assets are employed for specific purposes like education, health, or maintenance. Furthermore, the trust can provide long-term financial support to multiple family generations and protect assets from creditors or failed marriages. Ultimately, GSTs serve as a valuable estate planning technique that safeguards family wealth, provides lasting financial stability for beneficiaries, and supports a consistent multigenerational legacy.


A Generation-Skipping Trust (GST) is a type of estate planning tool that allows individuals to leave assets to their grandchildren, skipping their children’s generation, and potentially minimizing taxes or preserving wealth within the family. Here are three real-world examples: 1. Family Business Preservation: Imagine a successful entrepreneur built a family business and wishes to preserve the business’s value for future generations. To avoid potential issues, such as estate taxes and disputes among the offspring, the entrepreneur sets up a GST, transferring the business assets to the trust for the benefit of the grandchildren. This ensures that the value of the business is not diminished by estate taxes when passing from the entrepreneur’s children to the grandchildren. 2. High-Net-Worth Family Wealth Management: A high-net-worth individual wants to efficiently transfer wealth to future generations without passing through their children or facing significant estate tax liabilities. The individual creates a GST, which allows them to allocate their generation-skipping transfer tax exemption to the trust. The assets placed in the GST are distributed to the individual’s grandchildren, providing them with financial stability without burdening the children’s estates. 3. Inheritance Protection from Creditors or Divorce: A wealthy grandparent is concerned that their child’s (the grandparent’s son or daughter) poor financial management or potential future divorce could jeopardize the family’s wealth and inheritance intended for their grandchildren. By setting up a GST, the grandparent can ensure the inheritance designated for the grandchildren is protected from potential exposure to their child’s creditors or divorce settlements. The assets in the trust can be used for the grandchildren’s benefit while safeguarding it from being in their immediate control or possession.

Frequently Asked Questions(FAQ)

What is a Generation-Skipping Trust (GST)?
A Generation-Skipping Trust (GST) is a type of legal trust agreement that allows individuals to transfer their wealth to beneficiaries at least two generations younger than themselves, typically their grandchildren, bypassing their children’s generation. This allows wealth to be transferred without facing significant estate and gift taxes.
Why would someone want to establish a Generation-Skipping Trust?
The primary purpose of a GST is to reduce, or in some cases, eliminate estate and gift taxes that would be incurred when transferring wealth to successive generations. By skipping the intermediate generation, the wealth transfer is subject to tax only once, rather than twice as would be the case if the assets were first transferred to the children, and later to the grandchildren.
Who can create a Generation-Skipping Trust?
Anyone can create a GST; however, it is most beneficial for wealthy individuals or families looking to preserve and pass on multigenerational wealth while minimizing the burden of estate and gift taxes.
What are the tax implications of a Generation-Skipping Trust?
A Generation-Skipping Transfer Tax (GSTT) is levied on property transferred to a skip person (e.g., grandchild or further down the genealogical line), which is in addition to any federal gift or estate taxes. However, each individual has a GSTT exemption, which allows them to allocate a certain amount to their GST without being taxed. In 2021, the GSTT exemption is $11.7 million per individual.
Can a Generation-Skipping Trust be revoked or changed?
Depending on the specific trust agreement, a Generation-Skipping Trust can either be revocable or irrevocable. Revocable trusts can be changed or terminated by the grantor during their lifetime, while irrevocable trusts typically cannot be changed or revoked after the trust has been established.
Can a Generation-Skipping Trust provide benefits to the children of the grantor?
Yes, the trust can be structured in a way that provides financial benefits to the grantor’s children during their lifetime, while preserving the trust’s principal for the grandchildren. This could be in the form of income distribution, funds for education, or other financial support.
How do I set up a Generation-Skipping Trust?
To establish a Generation-Skipping Trust, it is important to work with an experienced estate planning attorney or a tax advisor. They can guide you through the process, help identify the trust’s beneficiaries, and ensure the trust is properly structured to comply with tax regulations and fulfill your specific goals.

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