What is a generation-skipping trust

What is a Generation Skipping Trust?

A Generation Skipping Trust (GST) is a strategic estate planning instrument that bypasses the grantor’s children, directing assets directly to grandchildren or later generations. This approach primarily aims to reduce estate and generation-skipping transfer taxes. 

Key features include minimizing estate taxes for large estates, protecting assets from beneficiaries’ creditors or in divorce settlements, and allowing the grantor control over asset distribution based on specific conditions. GSTs are highly customizable, offering flexibility in structure and long-term wealth preservation across multiple generations. They are an effective way to manage and transfer wealth while mitigating tax implications.

Pro’s and Con’s

Pros of a Generation Skipping Trust (GST)

  1. Tax Savings: GSTs help in minimizing estate taxes by skipping a generation. This can be especially beneficial for large estates, potentially saving significant amounts in taxes.

  2. Asset Protection: Assets within the trust are generally shielded from the beneficiaries’ creditors, legal judgments, or divorce proceedings, ensuring the preservation of wealth for future generations.

  3. Control Over Asset Distribution: The grantor can set specific terms for asset distribution, such as age, education goals, or other milestones, ensuring that the assets are used in a manner consistent with their wishes.

  4. Long-Term Wealth Preservation: GSTs facilitate the transfer of wealth across multiple generations, aiding in the long-term preservation and growth of family wealth.

  5. Flexibility: These trusts offer considerable flexibility in terms of their structure and can be tailored to fit specific family situations and goals.

Cons of a Generation Skipping Trust

  1. Complexity and Cost: Establishing and maintaining a GST can be complex and costly. It often requires the assistance of legal and financial professionals, leading to higher initial and ongoing costs.

  2. Irrevocability: Many GSTs are irrevocable, meaning once established, the grantor may have limited ability to alter the trust’s terms or access the assets.

  3. Potential for Family Conflict: Skipping a generation can sometimes lead to family conflicts, especially if the children feel bypassed or neglected.

  4. Regulatory Limitations: There are specific tax laws and regulations governing GSTs, including exemption limits, which might limit their effectiveness or applicability.

  5. Long-Term Predictability Challenges: Predicting the needs and circumstances of future generations is difficult, and the rigid structure of a GST may not always align with the eventual realities of beneficiaries’ lives.

Is a Generation Skipping Trust Right for you?

Determining whether a Generation Skipping Trust (GST) is the right choice for you depends on various personal, financial, and family factors. Here are some considerations to help you decide:

  1. Estate Size and Tax Considerations: If your estate exceeds the federal estate tax exemption limit, a GST can be an effective tool to minimize estate taxes. Understanding your potential tax liabilities is crucial.

  2. Family Dynamics and Goals: If your objective is to provide for grandchildren or future generations, and you’re comfortable skipping over your immediate children, a GST could align with your goals. It’s important to consider family relationships and potential conflicts.

  3. Long-Term Planning and Control: If you want to control how and when your assets are used by future generations, a GST offers that level of control.

  4. Asset Protection Needs: If protecting your assets from your beneficiaries’ potential creditors, divorce settlements, or other legal issues is a priority, a GST offers this protection.

  5. Financial Complexity and Costs: Be prepared for the complexity and costs associated with setting up and maintaining a GST. It requires legal and financial expertise.

  6. Flexibility and Change Tolerance: Consider how comfortable you are with the irrevocable nature of many GSTs. Once set up, making changes can be difficult or impossible.

  7. Future Uncertainties: Acknowledge the challenge of predicting the needs of future generations. A GST’s terms might not fully align with future realities.


What is a Generation Skipping Trust (GST)?
A GST is a trust that transfers assets directly to grandchildren or later generations, bypassing the grantor’s children.

Why use a Generation Skipping Trust?
It’s used to minimize estate taxes and protect assets across generations.

Are Generation Skipping Trusts only for the wealthy?
While particularly beneficial for larger estates, they can be advantageous for various financial situations.

Can a GST be changed or revoked?
Most GSTs are irrevocable, meaning they cannot be easily changed or revoked once established.

Who controls the assets in a Generation Skipping Trust?
The trust is controlled by a trustee, who manages the assets according to the trust terms.

How does a GST affect estate taxes?
It reduces estate taxes by skipping a taxable generation.

Can I provide for my children with a GST?
Yes, through specific provisions, children can receive benefits without direct asset transfer.

Are there any limitations on how much can be put into a GST?
Yes, there are exemption limits and regulations governing the amount that can be placed in a GST.

How long can a Generation Skipping Trust last?
GSTs can last for several generations, but the duration may be limited by state laws.

Is it necessary to have a lawyer to create a GST?
Due to its complexity, involving a lawyer is highly recommended for creating a GST.