Generation-Skipping and Dynasty Trusts in Florida

What it is

The generation-skipping transfer (GST) tax is a separate federal tax on every generation-skipping transfer (26 U.S.C. § 2601). It applies in addition to the estate and gift tax. Its purpose is to tax wealth at each generation, so a gift that bypasses your children and goes to your grandchildren does not avoid a layer of tax.

There are three kinds of generation-skipping transfers (26 U.S.C. § 2611(a)). A direct skip is a gift or bequest to a skip person, such as a grandchild (26 U.S.C. § 2612(c)). A taxable termination occurs when an interest in a trust ends and only skip persons remain (26 U.S.C. § 2612(a)). A taxable distribution is any other distribution from a trust to a skip person (26 U.S.C. § 2612(b)). A skip person is an individual two or more generations below you, or a trust in which only skip persons hold interests (26 U.S.C. § 2613(a)).

Generations are assigned by family line. A spouse, or a former spouse, is assigned to your generation regardless of age (26 U.S.C. § 2651(c)(1)), adopted and half-blood relatives are treated like whole-blood relatives (26 U.S.C. § 2651(b)(3)), and non-relatives are assigned by age: someone not more than 12½ years younger than you is in your generation, someone 12½ to 37½ years younger is one generation down, and a new generation begins every 25 years after that (26 U.S.C. § 2651(d)). If your child has died before the transfer, that child's children generally move up one generation and are not skip persons (26 U.S.C. § 2651(e)).

The tax rate is the maximum federal estate tax rate, now 40 percent, multiplied by the trust's "inclusion ratio" (26 U.S.C. §§ 2641, 2001(c)). The inclusion ratio depends on how much GST exemption has been allocated to the trust compared to the trust's value (26 U.S.C. § 2642(a)). Each person's GST exemption equals the basic exclusion amount, $15,000,000 for 2026 (26 U.S.C. § 2631(c)). A trust fully covered by exemption has an inclusion ratio of zero, and no GST tax applies to its distributions or terminations, no matter how much the trust grows.

That is the idea behind a dynasty trust: fund a trust with assets covered by GST exemption, let it grow, and let it benefit children, grandchildren, and later generations without estate or GST tax at each generation. Florida's perpetuities law determines how long such a trust can last, as explained below. For the broader estate and gift tax picture, see our Florida estate tax planning page.

Who Should Consider a Generation-Skipping Trust

A generation-skipping or dynasty trust is worth considering if:

• Your estate is large enough that your children are likely to have taxable estates of their own, so assets left to them outright would be taxed again at their deaths.
• You want to provide for grandchildren directly, through education trusts or lifetime gifts.
• You want assets held in trust for descendants over the long term, with an independent trustee and distribution standards, instead of outright inheritances.
• You are already using a SLAT or another irrevocable trust and want it to continue for later generations.
• One of your children has died, and you want to understand how the predeceased-parent rule treats that child's children.

Allocating GST exemption is the core of this planning. A trust that was meant to be GST-exempt but never received an allocation can face a 40 percent tax at each generation.

Florida's Rule Against Perpetuities: 360 and 1,000 Years

Florida's statutory rule against perpetuities generally requires a nonvested interest to vest or terminate within 21 years after the death of a person alive when the interest is created, or within 90 years (Fla. Stat. § 689.225(2)(a)). For trusts, Florida extends that period. For a trust created after December 31, 2000, through June 30, 2022, the 90-year period becomes 360 years (Fla. Stat. § 689.225(2)(f)). For a trust created on or after July 1, 2022, it becomes 1,000 years (Fla. Stat. § 689.225(2)(g)). In both cases, the longer period does not apply if the trust's terms require all interests to vest or terminate sooner.

The creation date matters. Property added later to a trust that was already funded is treated as created when the original contribution was made (Fla. Stat. § 689.225(3)(d)). Adding assets in 2026 to a trust first funded in 2015 does not give those assets a 1,000-year period. A new trust may be needed to take advantage of the longer period.

How a Generation-Skipping Trust Is Planned

A generation-skipping plan is built around the exemption: how much is left, which trusts receive it, and when.

• Step 1: Review prior gift tax returns to confirm how much GST exemption you have already used or had automatically allocated.
• Step 2: Identify which descendants the trust will benefit and confirm each person's generation assignment, including any predeceased-parent situations.
• Step 3: Decide whether the trust will be funded during life, at death, or both, and which assets will be used.
• Step 4: Draft the trust under Florida law with its duration, trustee succession, distribution standards, and powers of appointment.
• Step 5: Fund the trust and file a timely gift tax return that allocates GST exemption, or elects in or out of automatic allocation, so the inclusion ratio is clear.
• Step 6: Coordinate your will or revocable trust so any remaining exemption is allocated at death to the right trusts.
• Step 7: Keep a record of every allocation. Trustees decades from now will need it.

Frequently Asked Questions

The information on this page is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Florida law changes. Consult a licensed Florida attorney for guidance specific to your matter.