Generation-Skipping Trust

A generation-skipping trust is a type of trust that designates a grandchild, great-niece or great-nephew or any person who is at least 37½ years younger than the settlor as the beneficiary of the trust. The goal of a generation-skipping trust is to eliminate one round of estate tax.

Kim Borwick, Financial Editor for
  • Written By
    Kim Borwick

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for

    Read More
  • Edited By
    Emily Miller
    Emily Miller, Managing Editor for

    Emily Miller

    Managing Editor

    Managing editor Emily Miller is an award-winning journalist with more than 10 years of experience as a researcher, writer and editor. Throughout her professional career, Emily has covered education, government, health care, crime and breaking news for media organizations in Florida, Washington, D.C. and Texas. She joined the team in 2016.

    Read More
  • Financially Reviewed By
    Michael J. Boyle, M.S.
    Michael J. Boyle

    Michael J. Boyle, M.S.

    Former Compliance Professional

    Michael J. Boyle began his career in the securities business in 2011 as a registered financial professional. Over his tenure, he’s worked with asset classes including equities, fixed income, CDs, mutual funds, futures, options and foreign currency.

    Read More
  • Updated: December 22, 2022
  • 7 min read time
  • This page features 8 Cited Research Articles
Fact Checked
Fact Checked partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite's Article

APA Borwick, K. (2022, December 22). Generation-Skipping Trust. Retrieved January 29, 2023, from

MLA Borwick, Kim. "Generation-Skipping Trust.", 22 Dec 2022,

Chicago Borwick, Kim. "Generation-Skipping Trust." Last modified December 22, 2022.

Generation-skipping trusts offer tax advantages through the ability to bypass a generation when leaving assets to heirs. For example, a settlor may leave an inheritance to his or her grandchild without ever transferring ownership of the assets to the child’s parents. Upon the death of the skipped generation, the assets pass tax-free to the beneficiary.

Generation-skipping trusts are not exclusive to grandparent-grandchild relationships. They can be set up for a variety of relationships, with the exception of spouses and ex-spouses.

What Is a Generation-Skipping Trust?

An irrevocable trust that assigns a beneficiary who is younger than the settlor by at least 37 ½ years is called a generation-skipping trust. A settlor, also referred to as a trustor or grantor, can establish a generation-skipping trust as part of a comprehensive estate plan that aims to minimize tax liability.

Because a generation-skipping trust is a complicated legal entity, it’s a good idea to consider this financial instrument as early as possible — ideally when you begin planning your retirement.

How a Generation-Skipping Trust Works

According to the United States Code, generation-skipping trust rules include specific parameters regarding who can be appointed the “skip person.” These rules state that the skip person, or beneficiary, must be “a natural person assigned to a generation which is 2 or more generations below the generation assignment of the transferor.”

Generation-skipping trusts allow the settlor to avoid estate taxes that would be applied if the children, i.e., the next generation, took ownership of the assets.

Infographic displaying how generation-skipping trusts work

If you’re thinking about creating a generation-skipping trust, you need to consider a few points.

First, the federal generation-skipping tax (GST) exemption amount, indexed for inflation, increased to $11.7 million in 2021 and $12.06 million in 2022 for individuals. For couples, the exemption increased to $24.12 million in 2022. This means that you are allowed a lifetime generation-skipping tax exemption up to that amount against the property you transfer.

Second, there is no rule that prohibits the next generation from accessing earnings on assets as long as the original assets remain in the trust for the skip person.

Lastly, the beneficiary does not have to be a blood relative. You can designate anyone who is at least 37 ½ years younger than you as the beneficiary of a generation-skipping trust.


Generation-Skipping Trust and Taxes

According to the Tax Policy Center, “Congress enacted the generation-skipping transfer (GST) tax and linked all three taxes [estate, gift and generation-skipping transfer taxes] into a unified estate and gift tax” with the goal of closing the loophole that allowed families to avoid estate taxes.

Pro Tip
The 40 percent GST tax is in addition to the 40 percent gift and estate tax.

As a result, generation-skipping trust distributions above the exemption threshold are subject to the 40 percent GST tax as defined by the federal tax code, as well as to any state inheritance or estate taxes that may apply.

If, however, the value of the assets in the trust falls below the exemption amount, no taxes are owed. This is true for any appreciation of the assets as well because all gains go directly to the beneficiaries. This means that even if the value of the assets in the trust increases beyond the exemption limit, you will not have to pay the generation-skipping transfer tax.

The Tax Cuts and Jobs Act, signed into law in 2017, doubled the estate tax exemption until 2026. The high threshold means that most people will not have to pay the generation-skipping transfer tax, but for beneficiaries who receive assets that exceed the $11.58 million inflation-indexed exemption, the 40 percent top tax rate will be assessed on the taxable amount.

Looking for guaranteed income in retirement?
Annuities can provide you with income for life, ensuring you won't run out of money in retirement. Find out if an annuity is right for you.

Gift Tax

The 2022 gift tax was $12.06 million per individual. Therefore, you and your spouse would be able to gift $12.06 million each over your lifetime. The Tax Cuts and Jobs Act of 2017 has increased the annual lifetime gift tax exemption through 2025.


Connect With a Financial Advisor Instantly

Our free tool can help you find an advisor who serves your needs. Get matched with a financial advisor who fits your unique criteria. Once you’ve been matched, consult for free with no obligation.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: December 22, 2022

8 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Gordon, J. (2022, February 8). What's New in 2022: Gift and Estate Tax Exemption Updates. Retrieved from
  2. Internal Revenue Service. (2021, November 17). Instructions for Form 706-GS(T) (11/2019). Retrieved from
  3. McClelland, R. & Airi, N. (2020, January 6). Effective Income Tax Rates Have Fallen For The Top One Percent Since World War II. Retrieved from
  4. Tax Policy Center. (2020, May). How do the estate, gift, and generation-skipping transfer taxes work? Retrieved from
  5. The Tax Foundation. (2017, December 18). Preliminary Details and Analysis of the Tax Cuts and Jobs Act. Retrieved from
  6. Turbo Tax – Intuit. (2019). The Gift Tax Made Simple. Retrieved from
  7. U.S. House of Representatives. (2020, June 10). §2632. Special rules for allocation of GST exemption. Retrieved from
  8. U.S. House of Representatives. (2020, June 9). §2613. Skip person and non-skip person defined. Retrieved from