What is a Generation-Skipping Trust (GST)?
A generation-skipping trust is a form of trust that allows assets to be transferred directly to grandchildren (or other individuals, skipping one generation), bypassing children as direct beneficiaries. The goal is to avoid estate tax at the children’s level and ensure that a larger portion of the assets goes to the next generation.
Example: Ms. Anna, a resident of New York State, owns assets worth $12 million. Instead of transferring them to her children, she decides to establish a generation-skipping trust for her grandchildren. Thanks to the appropriate trust structure and the use of permitted tax exemptions (e.g., the federal GST tax exemption, which, for example, was $12.92 million in 2025), Ms. Anna can avoid double taxation – once when transferring to her children and again when her children transfer the assets to their children.
Benefits of a Generation-Skipping Trust:
- Protection against estate tax and generation-skipping transfer (GST) tax.
- Preservation of assets within the family for multiple generations.
- Ability to protect assets from beneficiaries’ creditors, divorces, or irresponsible management.
Other Tax-Saving Trusts
- Credit Shelter Trust (Bypass Trust)
This type of trust allows spouses to utilize the double tax exemption for federal estate tax. When the first spouse dies, a portion of the assets goes into the trust, which is not included in the second spouse’s estate.
Example:
Mr. John and Ms. Mary have joint assets worth $20 million. By using a credit shelter trust, upon John’s death, $10 million goes into a trust for Mary and their children. The remaining $10 million is transferred directly to Mary, who can use her own tax exemption when later transferring the assets. - Qualified Personal Residence Trust (QPRT)
This trust allows a homeowner to transfer their property to family while retaining the right to live in it for a specified period.
Benefits:
• Reduction in taxable value (upon property transfer).
• Potential avoidance of gift tax if the owner outlives the trust term. - Irrevocable Life Insurance Trust (ILIT)
Allows life insurance policies to be transferred outside the estate, which reduces the taxable value.
Example:
Mr. Thomas establishes an ILIT, into which he transfers a life insurance policy worth $5 million. Upon his death, the policy payout is not included in his estate and therefore is not subject to federal or state estate tax.
New York State Taxes
It is worth noting that New York State has a state estate tax, which applies to estates exceeding $6.94 million (as of 2025). New York does not impose a generation-skipping transfer (GST) tax, but federal regulations still apply.
Summary
Managing assets through trusts is one of the most effective tools for estate planning in New York. Generation-skipping trusts, credit shelter trusts, ILITs, and other mechanisms not only enable tax minimization but also offer asset protection and ensure a consistent transfer of values and resources for future generations.
It is always recommended to consult with an experienced trusts and estates attorney who can help tailor a strategy to your individual financial situation and family goals.
