If you’re like most people, you want to pass on some of your wealth to your loved ones when you die. And you’re also probably worried about how much of that wealth will go to the federal government and New York State.
A generation-skipping trust (GST) could save your family thousands in taxes while preserving wealth for future generations. But is it the right estate-planning tool for you?
Benefits of a GST
A GST allows you to transfer assets directly to beneficiaries who are two or more generations younger than you, such as your grandchildren, while also providing some benefits to the skipped generation (your children) during their lifetime.
One of the primary reasons people use GSTs is the significant tax savings they offer. Under federal law, you can transfer $13.99 million ($15 million beginning January 1, 2026) to each grandchild during your lifetime without triggering the 40% federal generation-skipping transfer tax (GSTT). The benefits are even more attractive in New York, which has its own estate tax with a $7.16 million exemption, but doesn’t impose an additional GSST.
Without a GST, if you leave everything to your children, who later pass the assets to their children, your family will face estate taxes at both levels. With a GST, you can transfer the assets directly to your grandchildren, while allowing your children to benefit from the trust income.
A GST can also protect assets from creditors and lawsuits. Once the assets are transferred into an irrevocable trust, they become the property of the trust, not the beneficiary. If your grandchild experiences financial difficulties, gets divorced or encounters legal problems, the trust assets remain protected.
A GST also gives you flexibility in how and when your beneficiaries receive assets, such as:
- Age-based distributions
- Milestone-based payments for achievements like graduating from college or buying a home
- Income distribution where the trust provides a regular income while preserving the principal
Generation-skipping trusts operate under complex federal and state regulations. It’s imperative that you discuss your estate planning goals with a legal professional who understands New York’s laws. They can review your family circumstances and financial situation to help you determine if a GST is the right choice for your needs.