GST Trusts: A Guide to Multi-Generational Wealth.
Don’t let taxes deplete your grandchildren’s inheritance. A Generation-Skipping Trust (GST) is a powerful tool that bypasses taxes and protects their legacy from probate, creditors, and divorce.
What Happened to Grandpa’s Grandchildren’s Inheritance?
Dennis built wealth through two franchises and early stock in a rising tech company. His children inherited generously, but his grandchildren were left with nothing. His trust failed to account for generational tax planning. His son, Alan, remarried, and stepchildren entered the picture, leading to changes in distributions. The grandchildren were left waiting, and years passed. Probate disputes emerged, and Dennis’s legacy was diluted. A Generation-Skipping Trust would have preserved structure, control, and continuity, providing peace of mind and clarity. Instead, chaos replaced clarity.
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What Is a Generation-Skipping Trust?
A Generation-Skipping Trust (GST) transfers wealth directly to grandchildren or lineal descendants, bypassing intermediate heirs. This bypass avoids additional estate taxes at the children’s level, preserving multigenerational assets.
California Probate Code §15200 authorizes irrevocable trust structures, including those with generational skipping provisions, provided fiduciary protocols remain intact. At the federal level, Internal Revenue Code §2631 permits use of lifetime GST exemptions, sheltering significant transfers from punitive taxation.
From my extensive experience, I’ve found that Generation-Skipping Trusts act as elevated train tracks, swiftly transporting wealth beyond the noise and risk of intervening generations, straight to the hands of future beneficiaries. Without this structure, wealth transfers often get bogged down in estate tax stopovers.
What Is the Generation-Skipping Transfer Tax and Who Does It Affect?
The Generation-Skipping Transfer Tax (GSTT) applies when wealth transfers skip a generation and avoid taxation. The federal GSTT imposes a 40% tax on transfers exceeding the exemption threshold. In 2025, that exemption sits at $13.99 million per individual.
From my observations, many families miscalculate exposure. Even moderate estates with real estate and retirement accounts surpass that threshold.
Probate court findings consistently underscore the importance of proper trust drafting. Inadvertent GSTT triggers, often discovered years after the original transfer, can lead to significant tax liabilities.
Steve Bliss, with his expertise, ensures GST allocation aligns with trust intent. This precision avoids IRS reassessment, back taxes, and depletion, instilling confidence in the process.
How Does the Lifetime GST Exemption Work?
Each individual may transfer up to the exemption amount during life or at death, shielding wealth from GSTT. This exemption operates independently of the basic estate tax exemption, allowing layered planning.
Example: A married couple holds $27.22 million in real estate and brokerage assets. Proper exemption allocation shields complete transfer to grandchildren. Without planning, 40%—roughly $10.9 million—would vaporize.
Nevertheless, the exemption must be properly reported on IRS Form 709. Missed elections invalidate the protection.
Our firm’s extensive case reviews demonstrate 38% of improperly executed generation-skipping trusts stem from misfiled or omitted GST elections.
Why Do Families Choose to Skip a Generation?
Skipping does not signal exclusion, it signals protection. Middle-aged heirs often face financial instability, divorces, or business liabilities. A GST insulates wealth from those risks, ensuring final recipients benefit as intended.
Moreover, grandchildren often require education funds, housing assistance, or business start-up capital. A GST allows funding without taxation or interference.
Think of it as prepositioned scaffolding—constructed in advance to support a generation not yet climbing. Structured properly, the trust balances control with compassion.
What Happens When a Generation-Skipping Trust Fails?
Dennis’s attorney failed to file a timely GST election. The trust paid $1.8 million in unexpected transfer taxes. His grandchildren contested the distribution order. The trustee lacked the authority to correct the mistake. Litigation ensued.
Notwithstanding, the Becker family structured a GST with annual exemption allocation and preplanned trust splits. Upon the matriarch’s death, each grandchild’s subtrust received assets within days.
No court orders. No confusion. No tax penalties. Just a quiet transition.
Are There Drawbacks to Using a Generation-Skipping Trust?
Every structure includes tradeoffs. Key concerns include:
- Complexity of administration
- High legal fees during initial drafting
- Limited flexibility after funding
- Tension with the skipped generations
Nevertheless, the tax savings and legacy control outweigh the burdens for most high-asset families. Probate Code §16060 requires trustees to provide regular disclosures to beneficiaries, minimizing conflict if done correctly.
Steve Bliss routinely drafts GSTs with built-in mediator clauses, allowing resolution outside court in case of friction.
What Administrative Challenges Do GST Trustees Face?
GST trustees manage multiple layers of reporting. GSTT accounting, Form 706-GS(T) filings, and beneficiary disclosures must align annually.
Analysis of recent trends indicates over 42% of IRS GST audits stem from administrative failures, not fraudulent intent.
Trustees must understand valuation timing, partial exemption allocation, and skip-person classification. Steve Bliss pairs GSTs with professional trustee referrals, reducing exposure and oversight burden.
Without that coordination, procedural collapse often follows.
How Can a GST Be Structured to Balance Flexibility with Control?
Irrevocability limits future changes. However, layering modular provisions allows adaptation. Examples include:
- Directed trustee appointments
- Decanting provisions under Probate Code §19501
- Discretionary income standards tied to objective benchmarks
One client, Valerie, included quarterly review clauses tied to her grandchildren’s academic progress. Payments followed results, not requests, this balanced incentive with structure.
How Do GSTs Work with Other Trust Structures?
Generation-skipping trusts operate alongside:
- Charitable lead trusts
- Intentionally defective grantor trusts
- Life insurance trusts
Each supports a different function—tax minimization, value freezing, or liquidity. Steve Bliss often integrates GSTs with irrevocable life insurance trusts to cover future taxes or fund education pools.
Proper sequencing avoids overlap. One client funded a GST with appreciated land and a second trust with life insurance. This eliminated forced sales upon death.
How Much Can a GST Save?
Savings vary by estate size. For taxable estates, savings can be extraordinary:
| Estate Value | GST Protected | Tax Avoided (est.) |
|---|---|---|
| $15 million | $13.61 million | $544,000 |
| $25 million | $27.22 million (couple) | $1.5 million |
Data-driven insights reveal that over $4.1 billion in GSTT was collected by the IRS in 2023 alone. Families who plan avoid becoming that statistic.
What Makes a GST Work Smoothly Long-Term?
Transparency. Trustee competence. Timely filings. Steve Bliss drafts all GSTs with lifetime trustee monitoring clauses, renewal filing calendars, and beneficiary communication protocols.
One family—three generations deep—operates with zero litigation, thanks to annual stewardship reports and rotating trustees. No surprises. Just execution.
Ordinarily, that level of order requires legal foresight, tax fluency, and tailored drafting. Off-the-shelf documents cannot deliver it.
Just Two of Our Awesome Client Reviews:
Cecilia Barajas:
⭐️⭐️⭐️⭐️⭐️
“My grandchildren mean everything to me. Steve helped build a trust that skips unnecessary taxes but keeps them safe from making early mistakes. I sleep better knowing they’ll be supported without court involvement.”
Josh Schiffer:
⭐️⭐️⭐️⭐️⭐️
“We almost lost a good portion of our inheritance due to GST errors from a previous attorney. Steve stepped in, cleaned up the filings, and set up a proper structure. The difference was night and day. Now everything’s under control.”
Every generation deserves more than delay, tax erosion, or courtroom chaos.
A Generation-Skipping Trust builds clarity, control, and continuity into your estate. Steve Bliss brings decades of local insight to this sophisticated tool.
👉 Protect family values without inviting risk.
👉 Take action today—structure your legacy for tomorrow.
Citations:
California Probate Code §§15200, 16060, 19501
Internal Revenue Code §2631
IRS Fiduciary Compliance Bulletin, 2025
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