Passing wealth to your grandchildren sounds straightforward, but federal tax rules and the New York state estate tax can reduce what actually reaches them. A generation-skipping trust is an estate planning tool that can help you transfer your assets beyond your children.
The role of a generation-skipping trust in estate planning
A generation-skipping trust is an irrevocable trust that allows you to pass assets to your grandchildren or subsequent descendants (subject to New York’s limits on trust duration). Your children can still receive benefits during their lives, such as income payments or other distributions, while the trust keeps the main property separate from their taxable estates.
This approach works well when your children already have financial stability, as it keeps assets out of their taxable estates and avoids a second layer of taxation that would otherwise apply.
Once the trust is funded, you generally cannot reclaim the assets or modify the terms. A trustee you select manages the trust and distributes wealth to beneficiaries based on the instructions set forth in the trust agreement.
The federal and New York tax advantages
The federal government imposes a generation-skipping transfer tax (GST) on certain transfers that skip a generation. As of 2026, the federal GST tax exemption is $15 million per individual, meaning transfers below that amount are not subject to the tax. This exemption is separate from the federal estate tax exemption.
New York does not impose its own generation-skipping transfer tax. The state does, however, have an estate tax with a much lower exemption of $7.35 million as of 2026.
The state’s estate tax also includes a “cliff” provision. Should your taxable estate go over the exemption by more than 5% (approximately $7.72 million for 2026), your entire estate will become subject to tax.
The requirements to create one
When you set up a generation-skipping trust:
- It must clearly identify the grantor, trustee and beneficiaries
- It is irrevocable, a status necessary to remove assets from your taxable estate for both estate and GST tax purposes
- It must comply with New York’s Estates, Powers and Trusts Law, including provisions on trustee duties and beneficiary rights
Due to the complexity of the forms and documents involved, it would be prudent to consult an attorney when drafting the trust.
The fit for your estate planning goals
A generation-skipping trust is not the right fit for every family. It tends to be most practical for individuals whose estates are large enough to face federal or New York estate taxes, particularly those who want to preserve wealth across multiple generations.
If your estate is well below the federal exemption but close to New York’s lower threshold, this type of trust may still play a meaningful role in your planning. When funded through lifetime gifts, a generation-skipping trust can remove assets from your taxable estate, provided you survive the gift by at least three years, potentially helping you stay below the New York estate tax cliff.
