Generation-Skipping Trusts in Georgia: Preserving Wealth Across Generations

Every time property passes from one generation to the next through a taxable estate, the federal estate tax takes a share — potentially at a rate of up to 40%. For families with significant wealth, this can mean that substantial assets are eroded at each generational transfer. A generation-skipping trust is a legal structure designed to address precisely this problem, allowing wealth to pass to grandchildren or even more remote descendants while minimizing the tax burden at each stage of transfer.

What Is a Generation-Skipping Trust?

A generation-skipping trust — also called a dynasty trust or GST trust — is an irrevocable trust designed to hold and distribute assets for the benefit of beneficiaries who are at least one generation below the grantor's children. The term "generation-skipping" refers to the trust's essential function: transferring wealth in a way that skips one or more generations for estate tax purposes, so that the assets held in trust are not included in the children's taxable estates when they die.

The grantor places assets into the trust and designates grandchildren — or subsequent generations — as the primary beneficiaries. The children may receive income or certain limited distributions during their lifetimes, but they do not own the assets outright, so those assets do not flow through the children's estates when they pass away.

The Generation-Skipping Transfer Tax

The federal government anticipated the use of generation-skipping structures as tax avoidance vehicles and responded with the generation-skipping transfer (GST) tax, which is imposed on transfers — including through trusts — to "skip persons." A skip person is generally a grandchild, great-grandchild, or any other person at least 37.5 years younger than the donor who is not a lineal descendant of a parent of the donor.

The GST tax is a flat rate equal to the maximum estate tax rate — currently 40% — applied on top of any estate or gift tax that may also apply to the same transfer. Without proper planning, a direct transfer to a grandchild can be taxed twice: once for estate tax and again for GST tax.

The GST Exemption

The law provides each individual with a lifetime GST tax exemption that can be allocated to generation-skipping transfers, shielding them from the GST tax. For 2026, the GST exemption is $15 million per individual — the same amount as the federal estate and gift tax exemption under the One Big Beautiful Bill Act. Married couples can effectively use both exemptions, shielding up to $30 million from GST tax through coordinated planning.

When assets are transferred to a properly structured GST trust and the grantor's GST exemption is allocated to those transfers, those assets can grow and be distributed to grandchildren and beyond without incurring additional GST tax — regardless of how much the trust grows. A transfer of $5 million into a trust that grows to $20 million over decades can pass the full $20 million to grandchildren without GST tax if the exemption was correctly allocated at the time of transfer.

How a GST Trust Works in Practice

The grantor establishes an irrevocable trust, funds it with assets, and allocates GST exemption to the transfer. The trust document identifies the initial beneficiaries — typically children or grandchildren — and specifies how distributions may be made during their lifetimes. The grantor typically names an independent trustee with discretionary authority over distributions, balancing the needs of current beneficiaries against the long-term purpose of preserving wealth for future generations.

Children of the grantor may receive income distributions or limited principal access from the trust during their lifetimes. When a child dies, their interest in the trust does not pass through their estate — it continues in trust for the next generation. This is the mechanism that prevents estate tax from eroding the trust's value at each generational death.

Georgia-Specific Considerations: The Dynasty Trust

Georgia law allows trusts to continue for up to 360 years, giving families the ability to create long-lasting dynasty trusts that can span multiple generations and potentially outlast the lifetimes of the initial beneficiaries and their children. This distinguishes Georgia from states that have shorter maximum trust durations.

A dynasty trust in Georgia can preserve significant family wealth across several generations — shielding the assets from both estate taxes and creditor claims of individual beneficiaries — while providing trustees with flexible authority to respond to the changing needs of family members over time.

Practical Considerations

A generation-skipping trust requires careful drafting to ensure that the GST exemption is properly allocated, that the trust satisfies IRS requirements, and that the distribution standards appropriately balance the interests of current and future beneficiaries. Misallocating or failing to allocate the GST exemption to covered transfers can expose trust assets to GST tax upon later distributions or termination.

This is a sophisticated planning tool most appropriate for families with estates large enough that multi-generational estate tax planning is a genuine priority. The upfront cost of establishing and properly funding a GST trust, and the ongoing administrative requirements, are meaningful — but for the right families, the long-term wealth preservation benefits can be substantial.