Transferring wealth across generations while managing estate, gift, and generation-skipping transfer tax. We design multi-generational trusts before we draft them, so the structure does the work the family intends.
The generation-skipping transfer tax is a flat 40 percent, charged on top of estate and gift tax whenever wealth passes to a grandchild or to anyone more than a generation below the donor. Each person has an exemption from it, $15 million in 2026, and a trust funded entirely with exempt dollars carries an inclusion ratio of zero for as long as it exists.
That last clause is the point. Illinois has allowed a qualified perpetual trust since 1998, so a dynasty trust settled here can run as long as the family does, with the exemption allocated once at funding and never again. The allocation is made on Form 709 at the value on the date of the gift; a late allocation uses the value on the date it is made. The automatic-allocation rules help in some trusts and misfire in others, so we elect in or out on every return.
We choose the governing law, draft the instrument to hold a zero inclusion ratio through every generation it names, and administer it afterward. Where an allocation or a valuation is examined, we represent clients in matters before the IRS.
Planning for transfers that reach grandchildren and later generations, coordinating the generation-skipping transfer (GST) tax with estate and gift tax so the family's wealth-transfer goals are pursued with all three regimes accounted for together.
Design of irrevocable, multi-generational trusts intended to hold and manage assets over time, with attention to the governing state law and the duration, distribution, and governance terms that fit the family's intent.
Planning and documentation of GST exemption allocation as part of designing and funding a trust, coordinating the required transfer-tax reporting so the allocation is made correctly.
Drafting of the trust instrument and its distribution standards, defining how and when beneficiaries benefit and building in flexibility through mechanisms such as trust protectors where a long-term structure calls for it.
Strategy for how assets move into the trust, selecting and timing contributions and coordinating the funding so the structure fits the family's broader estate and gift planning.
Design of the trustee and successor framework, including how fiduciaries are selected and replaced and how decision-making is governed, so the trust can be administered consistently across generations.
Coordination of dynasty and generation-skipping trusts with the wills, revocable and other irrevocable trusts, and asset-protection structures in the wider estate plan, so the pieces work as one plan.
Advice to trustees and families over the life of the trust on administration, recordkeeping, fiduciary income tax filings, and the periodic review that keeps the structure aligned with circumstances and current law.
The GST tax is a flat 40 percent, imposed in addition to the estate or gift tax. A bequest to a grandchild pays estate tax first and GST tax on what remains, so without exemption nearly two-thirds of a large bequest can reach the Treasury. Exemption, not rate planning, is the only relief.
An annual-exclusion gift that escapes gift tax escapes GST tax only if the trust has a single beneficiary whose estate takes whatever is left. A dynasty trust with many beneficiaries fails that test, so every Crummey gift to it consumes GST exemption, and the Form 709 that nobody thought was required is required.
Drafted as a grantor trust, a dynasty trust's income is taxed to the settlor, who pays it from assets that would otherwise be taxed at death, and the payment is not a gift. A trust reaches the top federal bracket at a little over $15,000 of retained income; an individual needs more than $600,000.
A trust governed by Illinois law can opt out of the rule against perpetuities if the instrument says so and the trustee holds a power of sale. South Dakota and Delaware allow the same and levy no state income tax on the trust, the usual reason an Illinois family still sends one west.
Three clauses keep a century-long document from fossilizing: a trust protector who can change administrative terms and trustees, a decanting power the Illinois Trust Code now supplies by statute, and a power in the settlor to swap assets of equal value, which lets low-basis property come back into the estate for a step-up before death.
After the settlor's death the trust files Form 1041, pays tax on income it keeps and reports what it distributes on Schedules K-1, with 65 days after year end to treat a distribution as the prior year's. The trustee keeps the exemption file, because an inclusion ratio is proved from the Form 709.
Before a word is drafted, we choose the trust's governing law, a jurisdiction whose rule against perpetuities permits the term the family wants, and map descendants, assets, and the three transfer-tax regimes onto that horizon.
The trust is drafted to hold a zero inclusion ratio. Distribution standards, trust-protector and decanting mechanics, and trustee succession are set so the exemption's shelter survives every generation the instrument names.
Assets move in by gift or sale, and GST exemption is allocated affirmatively on the gift-tax return, never left to the automatic-allocation rules by accident. The Form 709 is where the exemption's benefit is locked in or lost.
Trustees administer, fiduciary returns are filed, and the structure is reviewed as the law and the family change. If the IRS examines an allocation or a valuation, the file we built at funding is the defense.
A dynasty trust is drafted in one season and judged for a century, so we design for the beneficiaries who have not been born yet.
A federal tax of a flat 40 percent on transfers to a skip person, meaning a grandchild or anyone two or more generations below the donor, or an unrelated person more than 37 and a half years younger. It is imposed in addition to the estate or gift tax on the same transfer. It reaches three events: a direct skip, such as a gift to a grandchild; a taxable termination, when the last non-skip beneficiary of a trust dies; and a taxable distribution, when a trust pays a skip person. A grandchild whose parent has died is moved up a generation and is not a skip person. Each donor has an exemption equal to the estate-tax exclusion, $15 million in 2026, and allocating it correctly is most of the planning.
An irrevocable trust drafted to hold assets for several generations without ever being included in a beneficiary's estate. Each generation receives distributions under a standard the instrument sets, usually health, education and support, plus whatever the trustee chooses to add, and a beneficiary may be given a limited power to appoint among descendants at death. Nothing is owned outright, so nothing is taxed at each death and nothing is reachable by a beneficiary's creditors or a divorcing spouse, provided distributions are not commingled. Illinois has permitted a perpetual trust since 1998, so the structure can be built here, though families often choose South Dakota or Delaware for the absence of state income tax on the trust. Funded with GST-exempt dollars, it carries an inclusion ratio of zero for its whole life.
Every donor has an exemption equal to the estate-tax exclusion, $15 million in 2026, and allocates it to transfers on Form 709 or, at death, on Form 706. A trust's inclusion ratio is one minus the fraction of its value covered by exemption; a ratio of zero means no GST tax on any distribution or termination, ever, including on growth. A timely allocation uses the value on the date of the gift. A late allocation uses the value on the date it is filed, so a trust that has doubled costs twice as much exemption to fix. The Code also allocates exemption automatically to transfers to trusts that meet its definition of a GST trust, which catches some trusts a family meant to leave alone and misses others it meant to shelter, so the return should elect in or out expressly rather than rely on the default.
No. The tax reason for one begins where an estate approaches the exemption, but the other reasons start earlier. A trust that never distributes outright keeps a family business or a building from being divided among heirs or sold in a divorce, and it keeps an inheritance away from a beneficiary's creditors, since Illinois allows a spendthrift clause to bind them. The cost is a trustee, a fiduciary return each year and the discipline of asking the trustee rather than writing a check. A family with modest wealth and a difficult heir often has more use for the structure than a wealthy family with none.
Two trades. The first is control: the settlor gives up the property and any power to take it back or change who benefits, since a retained power pulls the assets into the estate. The second is basis: assets outside the estate do not get a new basis at death, so the heirs eventually pay capital-gain tax on growth the estate tax never touched. For a stock bought at a dollar and worth fifty, the 40 percent estate tax saved is weighed against 23.8 percent on the gain when it is sold. We soften both. A swap power lets the settlor exchange cash for low-basis assets shortly before death so they come home for the step-up, and a trust protector and the Illinois decanting statute allow administrative terms to be changed later without a court.
Yes, and the administration is where the exemption is kept or lost. During the settlor's life a grantor trust reports its income on the settlor's return, which is a benefit rather than a chore. After death the trust files Form 1041 each year, pays tax on retained income at brackets that reach the top rate above roughly $15,000, and issues Schedules K-1 for what it distributes. The trustee keeps the original Form 709 and its allocation statement indefinitely, because an inclusion ratio has to be proved from them decades later, and tracks separate shares so a non-exempt dollar never mixes with an exempt one. We advise trustees through each of those steps and represent clients in matters before the IRS when an allocation or a valuation is examined.
Irrevocable trust and life-insurance-trust planning to remove property from the taxable estate and structure how assets are held and transferred.
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Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
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