Quick answer: A generation-skipping trust (GST trust) lets you transfer wealth to grandchildren or beyond — skipping one full round of estate tax that would otherwise apply at each generational transfer. The federal GST exemption in 2024 is $13.61 million per person. Assets you shelter under this exemption can compound across multiple generations without being taxed again at each death.
The Problem It Solves
Without a GST trust, wealth transferred through three generations gets taxed three times — once at each death — at a top estate tax rate of 40%. On a $10 million estate, that's potentially millions lost to taxes at each generational handoff. A GST trust breaks that cycle: assets pass from grandparent to grandchildren (and great-grandchildren) in trust, taxed only once at the top, with the trust holding and distributing assets for decades.
Your children can still benefit — the trust can allow distributions to children during their lifetimes for health, education, maintenance, and support (the "HEMS" standard), while the principal remains in trust for grandchildren.
The Generation-Skipping Transfer Tax (GSTT)
Congress created the GSTT specifically to stop families from skipping estate tax by jumping generations. The GSTT rate equals the highest estate tax rate — currently 40%. However, each person has a GSTT exemption ($13.61 million in 2024, same as the estate tax exemption). Transfers within that exemption amount are GSTT-free. Transfers above it get hit with the GSTT on top of, or instead of, estate tax.
Combining GST with a Dynasty Trust
In states that permit perpetual trusts (Texas allows trusts to last up to 300 years under current law), a GST-exempt dynasty trust can shelter assets for multiple generations indefinitely. The trust never terminates, so the GSTT exemption applied at the beginning protects all future growth. This is one of the most powerful multigenerational wealth strategies available. Work with an estate planning attorney to structure the trust and allocate GST exemption correctly from the start.
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Kyle Ellison is a licensed financial professional in TX, CA, NV, MT, UT, NM helping families protect and pass on what they've built.