Standard wealth transfer often acts like a “leaky bucket,” losing value to estate taxes at every generation. A Generation-Skipping Trust (GST) prevents this by moving assets to beneficiaries at least 37.5 years younger, typically grandchildren, while often still providing income to your children.
With the 2025 lifetime exemption at $13.99 million, this strategy is essential for maximizing tax efficiency. At The Law Office of David S. Schleiffarth, LLC, we help St. Louis families structure these trusts to ensure their legacy is preserved.
We can examine why a GST is a powerful estate planning tool for long-term family goals.
How GSTs Fit Into Modern Multigenerational Planning
A generation-skipping trust transfers assets in a trust for grandchildren or others who are at least 37.5 years younger than you, while still allowing your children to benefit from income in many designs.
This approach supports a long game, focusing on tax efficiency, preserving principal for future generations, and trimming transfer taxes that can chip away at wealth each time an estate moves down a generation. With bigger lifetime exemptions in recent years and more families holding appreciated assets, these trusts have gained fresh attention.
With that foundation in place, we can examine why a GST is a powerful estate planning tool for long-term family goals.
Why Generation Skipping Trust Matters in Long-Term Wealth Strategy
Without planning, the same dollars can face estate tax again and again as they move from you to your children, then from your children to your grandchildren.
A generation-skipping trust avoids the middle round of transfer tax on principal, which helps more of the assets stay in the family and preserve wealth. Your children can still receive trust income in many setups, while the principal is preserved for the next generation.
Here is a simple picture. Suppose $10 million would be taxed in your child’s estate, then taxed again when passed to your grandchild. An adequately funded GST uses your lifetime exemption to shelter principal today, then the future growth can compound inside the trust without hitting federal estate tax at your child’s level.
- Less wealth lost to repeat estate taxes across back-to-back estates.
- Room for long-term investing inside the trust, which can help offset inflation and market swings.
- Clear guidance for your trustee about timing and conditions for distributions.
Next, a few legal building blocks help the plan work as intended to manage trust assets effectively.
Legal Components You Need to Know Before Creating a GST
A GST sits on legal rails, so the trust document and titling must be correct. You will choose a trustee, define who benefits and when, and spell out standards for distributions, investments, and eventual wrap-up.
Before moving assets, think through these items with counsel:
- Trust creation rules in your state, including signing, witnesses, and a notary.
- Who counts as a skip person, and how to word the distribution standards for children and grandchildren.
- How assets will be retitled to the trust and what records the trustee must keep.
- How the trust addresses taxes, investment policy, and dispute resolution.
An experienced estate planning attorney and a tax professional can make sure the trust terms match your goals and line up with state law and federal tax rules.
With the legal pieces in place, we can discuss the special tax that applies to these transfers.
Generation-Skipping Transfer Tax (GSTT)
The Generation-Skipping Transfer Tax (GSTT), often called the GST tax, is a federal levy designed to prevent families from bypassing estate taxes by transferring assets directly to younger generations.
In other words, it applies when you transfer wealth to someone who is two or more generations below you, typically grandchildren, or to a non-family individual who is at least 37.5 years younger than the giver, thus relating to the generation skipping tax. This structure was created to prevent taxpayers from using strategic gifting to skip an entire generation and avoid estate-level taxation.
Even though the GSTT sits alongside other tax laws that regulate wealth transfers, Congress intentionally carved out substantial exemptions. These exemptions ensure that ordinary, good-faith gifts to younger family members are not caught in the system simply because parents or grandparents want to support education, home purchases, or other milestones.
As of 2025, the lifetime exemption amount is $13.99 million per person, or $27.98 million for married couples. This exemption is unified with both the federal gift tax and the estate tax, meaning all three systems share the same lifetime limit. Only transfers that exceed this threshold are subject to GSTT, and when they are, the top tax rate is 40 percent.
These high limits provide significant tax benefits for most families, who never come close to triggering the GST, and they can take advantage of the GST exemption. That’s intentional: the system is meant to regulate huge transfers of wealth, not everyday gifts or support provided to younger family members.
| GSTT and Related Rules, 2025 Snapshot | ||
| Topic | Rule or Amount | Notes |
| Who is a skip person | Two or more generations below, or 37.5 years younger, and not a spouse or ex-spouse | Grandchildren are common beneficiaries |
| Lifetime GST exemption | $13.99 million per person | Unified with the annual gift tax exclusion |
| Married couple amount | $27.98 million combined | Portability applies to the estate tax; GST portability has quirks |
| Top tax rate | 40 percent | Applies to amounts above the exemption |
| Gift tax exemption | $19,000 per recipient | Can support GST planning when structured correctly |
With the basics covered, let’s look at practical ways families use a GST to improve tax results across multiple generations.
Strategies for Improving Tax Outcomes Using a GST
Families often pair a GST with moves that lower the taxable value of transfers or spread them over time. The goal is straightforward: use the exemption effectively and keep growth outside taxable estates.
- Use the GST exemption to allocate a lifetime exemption to the trust at funding, shielding principal and future growth.
- Annual exclusion gifts, send $19,000 per person each year to a properly drafted trust, which can add up across children and grandchildren.
- Valuation discounts, if you gift minority interests in a family entity, qualified discounts can lower the transfer value on paper and stretch the exemption.
Advanced designs like grantor trusts can also help, since the grantor pays the trust’s income tax, which quietly lets the trust grow without shrinkage due to tax payments.
Good structure needs good management, which starts with choosing the right trustee.
Trustee Selection and Responsibilities
The trustee runs the trust, keeps records, files taxes, invests assets, and follows the distribution rules in the document. This is a long-running job, so pick someone, or a company, that has the time, skill, and steadiness to manage it well.
Think about these qualities when choosing a trustee: practical experience with trusts, a calm and impartial approach, and strong financial sense, especially in the context of divorce settlements. You can name an individual, a corporate trustee, or both together to blend family legacy with professional systems.
Once your trustee is lined up, the next question is how state rules affect the plan and what implications they have on the tax burden.
GST Planning in Missouri: State Tax Considerations
Missouri does not impose a separate state estate tax or an inheritance tax. That removes one layer of concern for many families. Trusts administered in Missouri may still be subject to Missouri fiduciary income tax on undistributed income; legal fees may apply; and beneficiaries may pay income tax under their own state rules.
Duration rules for trusts depend on state law and drafting, and Missouri allows long-term planning when set up correctly. Title work for real estate, business interests, and accounts held in Missouri should be handled with care to avoid funding gaps.
- No Missouri estate or inheritance tax; federal rules still apply.
- Trust income can be taxed at the state level based on the administration and sourcing rules.
- Local recording, titling, and registered agent details matter for Missouri assets.
Because local practices affect timing and paperwork, it is wise to obtain Missouri-focused guidance before funding the trust.
How Professional Guidance Shapes a Well‑Structured GST
Wealth planners, attorneys, and financial advisors each bring something different to the table, including strategies for asset protection. Attorneys draft and align the trust with the law. Financial pros help build an investment plan that fits the trust’s payout rules and time horizon.
A planning team can model taxes, track exemption use, and monitor legislative changes that require updates. Working together, they make sure the moving parts, from allocations to titling to tax filings, match your goals without loose ends.
If this sounds like a fit for your family, a short meeting can clarify next steps.
Ready to Discuss Your Estate Planning Needs? Contact Us Today
The Law Office of David S. Schleiffarth, LLC, focuses on clear plans that protect family wealth and reduce stress for future heirs. We welcome your questions and are happy to walk through whether a Generation-Skipping Trust is a good fit for your situation. If you need legal or tax advice regarding a generation-skipping transfer, feel free to reach out to us.
Call 314-448-0527 or use our contact form to schedule a convenient time. Feel free to contact us even if you are comparing options; a short chat can save a lot of guesswork later.
