Quick-Read Summary

A Generation-Skipping Trust (GST) is an estate planning tool designed for high-net-worth families to transfer wealth to beneficiaries at least 37½ years younger than the grantor, typically grandchildren, bypassing the grantor’s children.

This “skipping” of a generation helps to avoid estate taxes that may otherwise be incurred by the immediate next generation. While the primary assets are held in trust for the younger beneficiaries, the grantor’s children can still receive income generated by the trust’s assets.

Although GSTs offer significant tax advantages, they may still be subject to a transfer tax depending on the amount. Current federal exemptions, increased and extended by the “One Big Beautiful Bill Act,” provide substantial limits before the transfer tax applies.

For estate planning advice including the strategic creation of trusts to create a legacy for your loved ones, contact South Florida Law on (954) 900-8885 or reach out via our contact form.

For families with a high net worth, inheritance and estate planning can be complex.

Fortunately, with the assistance of a knowledgeable estate planning attorney, there are a number of ways for these families to provide a financial legacy for descendants in a tax-advantageous way.

One such estate planning tool is a generation-skipping trust (GST). When properly configured, a GST can distribute wealth to more than one generation and avoid the lion’s share of, or in some cases all, of the tax liability that would otherwise exist.

Although there is no inheritance tax or estate tax in the State of Florida, it is important to note that the estate of a deceased person could still owe federal inheritance taxes if the value of the estate exceeds the lifetime limit set by the IRS.

What is a Trust?

Before delving into the details of what a GST is, it is worth looking at what a trust is in the most general sense.

Trusts are legal entities that allow assets to be distributed to beneficiaries, usually after the death or incapacitation of the person setting up the trust. The person setting up the trust is called the grantor. In many cases, trusts are set up with the beneficiaries being in the next generation after the grantor (usually the grantor’s children, nieces or nephews).

Learn more about setting up a trust in Florida by clicking here.

What is a Generation-Skipping Trust?

GSTs are legally binding trust agreements with an important difference. Instead of assets being passed down to the next generation as would be the case with a normal trust, the assets in a GST are passed down to the grantor’s grandchildren, effectively “skipping” the generation directly after the grantor.

When correctly set up and maintained, a generation-skipping trust can be a very powerful tool for reducing inheritance tax and gift tax liability and thus they help preserve wealth for future generations.

The language of the law allows for anyone at least 37½ years younger to be beneficiaries, bypassing the next generation of most grantors. In skipping the children of the grantor, a GST avoids the estate taxes that would otherwise be due to the next generation.

Beneficiaries

Although grandchildren are the most common beneficiaries, the recipient of the assets in a GST doesn’t have to be a direct descendant. In fact, the beneficiary can be anybody who is at least 37½ years younger than the grantor and not a spouse or ex-spouse. Typical cases also include grandnieces and nephews. However, beneficiaries can also be younger people who are not directly related to the grantor in any way, if the grantor so wishes.

“When correctly set up and maintained, a generation-skipping trust can be a very powerful tool for reducing inheritance tax”.

Generation-skipping trusts are designed to transfer wealth to at least the second generation after the grantor, but can still provide some financial benefits to the next generation (ie: the grantor’s children). This is the case because the grantor can give his or her children access to rents, interest, dividends and other income generated by the trust’s assets while still leaving the assets themselves in trust for grandchildren.

Tax Treatment of GSTs

Despite the tax advantages to generation-skipping trusts, the instrument may still be subject to a transfer tax depending on the amount transferred. The rate of this tax has varied from year to year, reaching as high as 55% in 2001 and as low as 0% in the period following 2010.

Since then, the “One Big Beautiful Bill Act“ (OBBBA) permanently increased and extended the federal GST tax exemption, eliminating the decrease that was expected at the end of 2025. For 2025, the GST exemption is $13.99 million per individual, and will increase to $15 million per person in 2026, with future adjustments for inflation.

South Florida Law

Are you considering setting up a generation-skipping trust to pass on your legacy in a tax-advantaged manner? If so, South Florida Law has the expertise and experience to:

Ensure that your future generations (or other beneficiaries) receive the assets and income from the GST in the manner that you intend.

Create and maintain a GST, navigating the complexities that include reporting requirements and other and other regulatory compliance activities.

Work with your CPA and other professionals to manage and administrate the GST to prevent tax-related losses.

South Florida Law, PLLC is a law firm with estate planning professionals licensed to practice law in the State of Florida. Are you a Florida resident considering setting up a generation-skipping trust? If so, contact South Florida Law today using our contact form or by phone (954) 900-8885.