Generation-Skipping Trusts in 2026: How Retirees Can Pass Wealth to Grandchildren

By Keith Speights – Mar 27, 2026 at 4:44AM ESTKey PointsThe generation-skipping trust (GST) is a great tool in many cases for grandparents to transfer wealth to their grandkids.Advantages of GSTs include avoiding double taxation and shielding assets from creditors and lawsuits.Setting up a GST, however, requires careful planning.Grandparents and their grandchildren often have special bonds. However, another "family member" -- Uncle Sam -- likes to get heavily involved when grandparents want to transfer their wealth to the grandkids. The generation-skipping transfer tax (GSTT) is a federal tax on transfers of assets to anyone more than one generation below the person making the transfer. The IRS definition of one generation below is when the beneficiary is more than 37.5 years younger than the transferor. The GSTT matches the highest federal gift and estate tax rate at the time of the transfer -- 20% in 2026. And it comes on top of any other applicable federal gift or estate taxes. How can retirees pass wealth to their grandchildren and minimize the taxes owed? The generation-skipping trust (GST) is a great tool in many cases. Image source: Getty Images. Advantages of a generation-skipping trust Generation-skipping trusts offer several advantages for wealthy retirees, including: Avoids double taxation. If you transfer assets to your children, they must pay taxes. When your children transfer assets to their children (your grandchildren), taxes must be paid again. A GST eliminates one of these taxation steps. Shields assets. Once your assets are put into a GST, they're shielded from creditors, divorce settlements, and lawsuits. Allows some control over assets. GSTs allow you to establish detailed terms for how the assets are handled and distributed. You can choose to limit distributions to approved purposes, including education, healthcare, or home purchases, if you like. Doesn't leave out your children completely. While GSTs are designed to skip a generation in transferring wealth, your children can still benefit. You can set up the trust to distribute income to your children. However, the principal must be untouched to be used for your grandkids. Also, GSTs can help your children because the assets in the GST can't be included in their estates. Complicated but powerful GSTs are complicated. Setting up these trusts requires careful planning and can incur hefty legal fees. It's best to work with estate planning professionals to structure the GST in a way that works best for you and your heirs. These trusts don't always eliminate taxes. If your estate is especially large (over the $11.7 million exemption for 2026), generation-skipping taxes will still apply. Also, GSTs are irrevocable trusts. You can't change the trust or revoke it once it's set up. Despite their complexity, though, GSTs are a powerful tool for leaving a financial legacy to your grandchildren or great-grandchildren.Read NextMar 27, 2026 •By Dana GeorgeWhy You Should Never Delay Social Security Past Age 70Mar 27, 2026 •By Maurie BackmanThis Social Security Decision Could Make a Big Difference for Married RetireesMar 26, 2026 •By Maurie Backman3 Things Financial Advisors Won't Tell You About Retiring in 2026Mar 26, 2026 •By Kailey Hagen, CFPIs Your Social Security Benefit Smaller Than It Should Be? 5 Mistakes That Could Cost You in 2026.Mar 26, 2026 •By Maurie BackmanHow to Recession-Proof Your Retirement Income Before 2026 EndsMar 26, 2026 •By Maurie BackmanHere's 1 Major Problem With the 4% Rule All Retirees Should Know AboutAbout the AuthorKeith Speights is a contributing Motley Fool healthcare analyst covering publicly traded companies across pharmaceuticals, biotechnology, medical devices, technology, and marijuana. Prior to The Motley Fool, Keith was CEO of Constant Care Technology, a healthcare technology company; vice president of American HealthTech, a healthcare software company; and a director of operations for Blue Cross Blue Shield of Mississippi, a health insurer. He holds a B.S. in Industrial Engineering from Mississippi State University.TMFFishBiz