What Is a GST Trust (Generation-Skipping Transfer Trust)?

1. How Does a Generation-Skipping Trust Work?

A generation-skipping trust works by keeping property in trust across generations instead of passing it outright to each one. Property you leave outright to your children is taxed in your estate and again in theirs. Property you leave in a properly written trust for your children and grandchildren is taxed once, in your estate or as your gift, and then passes down without estate tax at each child’s death.

A separate federal tax closes that gap unless the trust is exempt. Congress added the generation-skipping transfer tax so that skipping a generation does not skip a tax. Each person has a GST exemption, and a trust fully covered by it is taxed at a rate of zero forever, including on its growth.

The name is misleading in one way. A GST trust usually benefits your children too, often with income and support for life, and skips only the estate tax at their deaths. Our guide to the Florida dynasty trust covers the long-term version of the same trust.

2. What Is the GST Tax?

The GST tax is a flat federal tax at the top estate tax rate, 40%, multiplied by the trust’s inclusion ratio, the share of the trust not covered by exemption. A trust with an inclusion ratio of zero pays nothing, and one with an inclusion ratio of one pays the full 40%. The tax applies on top of any estate or gift tax already paid.

The tax applies in three ways, and each has its own payer.

1. A direct skip is a gift or bequest straight to a grandchild, or to a trust only for grandchildren. The person making the transfer pays the tax, or the trustee where the skip comes from a trust.
2. A taxable distribution is a payment from a trust to a grandchild while a child still has an interest. The grandchild receiving the payment pays the tax.
3. A taxable termination happens when the last interest of a child’s generation ends, such as at a child’s death, and only grandchildren or later generations remain. The trustee pays the tax from the trust.

Florida has no generation-skipping tax of its own, so a Florida family plans around the federal rules only.

3. Who Counts as a Skip Person?

A skip person is anyone two or more generations below you. For family members, federal law counts generations from your grandparents, so a grandchild, a grandniece or a great-grandchild is a skip person, while a child, niece or nephew is not. A spouse, or anyone who was ever married to you, is treated as your generation whatever the age difference.

For someone outside the family, age decides. A person born more than 12 and a half years but not more than 37 and a half years after you is one generation down, and anyone born more than 37 and a half years after you is a skip person. A gift to a friend’s young child can therefore be a generation-skipping transfer.

A parent’s death moves a grandchild up. If your child has already died when you make the transfer, that child’s children are treated as your children for GST purposes, and a gift to them is not a skip.

4. How Does the GST Exemption Work?

Each person’s GST exemption equals the federal estate tax basic exclusion, $15,000,000 in 2026, and it rises with inflation after 2026. The exemption is used by allocating it to property on a gift tax return, Form 709, or on the estate tax return at death, and every allocation is irrevocable once made.

Federal law allocates the exemption automatically in two cases. A direct skip during life receives exemption automatically, and so does a lifetime gift to a trust that could benefit grandchildren, called a GST trust in the statute. The automatic rules can allocate exemption to trusts that did not need it, or skip trusts that did, so the gift tax return for every trust gift should state the choice expressly.

The GST exemption is not portable. A surviving spouse can inherit the deceased spouse’s unused estate tax exemption through portability, but the GST exemption of a spouse who dies without using it is lost. A couple who want both exemptions to reach grandchildren usually need a trust at the first death, and our guide to the bypass trust explains how that trust carries the first spouse’s GST exemption.

A GRAT is a poor place for the exemption, because none can be allocated until the GRAT term ends, while a SLAT can carry the exemption from the day it is funded.

5. How Long Can a GST Trust Last in Florida?

A Florida trust created on or after July 1, 2022 can last up to 1,000 years, and one created between January 1, 2001 and June 30, 2022 can last 360 years. Florida measures the period from the day the power to revoke ends, so a trust inside your revocable living trust starts its clock at your death rather than at the signing. The trust document can choose a shorter term but never a longer one.

A longer trust keeps the exempt property out of more estates. A trust that ends when the grandchildren reach 30 pays the property out to them and it is taxed in their estates. A trust that continues for their children and grandchildren keeps the exempt property sheltered for every generation it lasts. Families outside Florida can use Florida’s period by naming a Florida trustee and administering the trust here, which our dynasty trust guide covers along with the length of a Florida trust.

6. How Should a GST Trust Pay Out?

A GST trust should pay each family beneficiary under a standard that does not give the beneficiary ownership. If a child can take trust property for any purpose, federal law treats the child as holding a general power of appointment, and the property is taxed in the child’s estate, which defeats the plan. A power limited to the child’s health, education, maintenance or support is not a general power.

Florida law imposes that limit by default on any trustee who is also a beneficiary, unless the trust expressly provides otherwise, and our page on limits on trustee discretion covers the rule. Words such as welfare, comfort or happiness go beyond the standard. A trust that needs broader discretion gives that discretion to an independent trustee rather than to the beneficiary. The case at the end of this page shows what one extra word cost.

A GST trust also needs a trustee who can serve for decades. A trust company, a family member with a successor list, or both together are the usual answers, covered in our guides to what a trustee is and the successor trustee.

7. Can a GST Trust Be Changed Later?

A GST trust can be changed in some cases, and every change has to be tested against its exempt status first. Florida law lets the beneficiaries and trustee modify an irrevocable trust by agreement in some cases, lets a court modify one, and lets a trustee with discretion over principal decant the property into a new trust. Our pages on changing a trust by agreement and decanting set out the statutes.

Older trusts need extra care. A trust that was irrevocable on September 25, 1985 is outside the GST tax entirely, and federal regulations list the kinds of changes that keep that status. A change outside those rules can make a tax-free trust taxable. Families holding a trust from before 1985, or any trust created with an allocation of exemption, should have a change reviewed for both Florida law and the federal rules before anyone signs.

What Does a GST Trust Cost?

Designing a GST or dynasty trust is a flat fee quoted at consult, because the work depends on the family, the assets and whether the trust is funded during life or at death. The fee includes the trust, the allocation instructions for the gift tax return prepared with your accountant, and a trustee succession plan. Recording and other third-party costs are additional and passed through at cost. Advertised fees are honored for 90 days from the posted date.

Frequently Asked Questions

Common Situations

The grandparents paying for college. A couple want to help six grandchildren through school and leave something to their great-grandchildren. The grandparents fund a Florida trust for all their descendants, allocate GST exemption to it on their gift tax returns, and let the trustee pay tuition and support, so the property is never taxed in their children’s estates.

The widow whose husband’s exemption lapsed. A husband died with a simple will leaving everything to his wife, and his estate filed for portability. His estate tax exemption carried over to her, but his GST exemption did not, so the family can shelter only her $15,000,000 for the grandchildren.

Sources of Law

• 26 U.S.C. §2612(a)-(c) (taxable termination, taxable distribution, direct skip); §2603(a) (who pays the tax); §2641 (applicable rate is the maximum estate tax rate times the inclusion ratio), law.cornell.edu.
• 26 U.S.C. §2651(b)-(e) (generation assignment; spouses; persons not lineal descendants by 12 and a half and 37 and a half years; predeceased parent rule).
• 26 U.S.C. §2631(a)-(c) (GST exemption equal to the basic exclusion amount; allocations irrevocable); §2010(c)(3)(A) (basic exclusion amount of $15,000,000); §2632(b),(c) (deemed allocation to lifetime direct skips and to indirect skips to GST trusts); §2041(b)(1)(A) (ascertainable standard).
• Treas. Reg. §26.2601-1(b)(1)(i) (trusts irrevocable on September 25, 1985) and (b)(4)(i) (modifications that do not cause an exempt trust to lose exempt status).
• Fla. Stat. §689.225(2)(f),(g),(3)(b) (360-year and 1,000-year periods; the interest is created when the power to revoke ends), flsenate.gov; Fla. Stat. §736.0814(2)(a) (trustee-beneficiary limited to health, education, maintenance or support); §736.0412 (modification by agreement); §736.04117 (decanting).
• Case retold below: Porter v. Ogden, Newell & Welch, 241 F.3d 1334 (11th Cir. 2001). Opinion read in full; retrieved September 30, 2026.

The One Word That Put a $55 Million Trust at Risk

I see cases where a long-term trust is drafted with care for decades of tax savings and then depends on a single word in the distribution clause.

In 1960 two law firms, one of them from Kentucky, prepared a will and a trust for a man named H. Boone Porter, and the meaning of the trust turned on Florida law. The trust was designed to skip generations, benefiting him for life, then his wife and his son, a minister, and finally the son’s children and grandchildren, so the property would not be taxed again until the great-grandchildren’s generation. The trust let the son become a co-trustee, and one paragraph let the trustee pay principal to an income beneficiary for medical expenses and for maintenance, support and welfare. Federal tax regulations treat welfare as broader than the support standard, so a son serving as trustee who could pay himself for his welfare arguably held a general power of appointment, and the whole trust could be taxed in his estate. He discovered the problem in 1990. Florida law was unsettled on what welfare meant, so he persuaded the Florida Legislature to change the law, obtained a private letter ruling from the IRS, obtained a court order reforming the trust to strike the word as a drafting error, and obtained a second IRS ruling that the reformation caused no tax harm. He died on June 5, 1999, when the trust was worth about $55,000,000 and the estate tax at stake was about $30,000,000. His trustees sued the law firms for the cost of the repairs. The trial court dismissed the claim as premature because the IRS had never assessed a tax. The Eleventh Circuit reversed in 2001, holding that the money spent fixing the trust was a real injury, so the claim could proceed.

My reading of that case is that the trust worked, but only because one beneficiary spent nine years and a legislative campaign making it work. In reviewing long-term Florida trusts, I have a few take-home points.

The first is the standard. Health, education, maintenance and support is the wording federal law recognizes. Avoid adding welfare, comfort, happiness or best interests to any power a family beneficiary holds over his own distributions, because each extra word invites the argument the Porter family had to defeat.

The second is who holds the discretion. A trust that needs a broad standard gives it to an independent trustee, and gives the family trustee the support standard only. Florida now applies that limit by default to a trustee who is also a beneficiary, which is the safety net the Porter trust did not have in 1960.

The third is the repair. A trust that has already been signed can often be fixed by a court reformation or a Florida decanting, but for a trust with GST exempt status the repair must be planned so it does not create a new transfer.

An owner can settle these points at the drafting stage for the price of a careful read. One limit is worth stating plainly. The appeals court left open whether the law firms were actually negligent and whether the repairs were reasonable, so the opinion does not say who ultimately paid.

Kevin D. Klagge, Esq., admitted in Florida since 2012. The case described above is a decision of the United States Court of Appeals for the Eleventh Circuit rather than a matter handled by this firm. Past results do not guarantee a similar outcome.

Updated on September 30, 2026. Reviewed by Kevin D. Klagge, Esq., Fla. Bar No. 99502. Attorney Kevin Klagge represents families, businesses, and international clients in estate and tax planning, business structuring, and international law, with a focus on Florida legal tools. He litigates estate and business issues in court. General information about federal and Florida law, not legal or tax advice, and no attorney-client relationship is created. Do not send confidential information until we have agreed to represent you.