The Conundrum of the Non-GST-Exempt Trust

In many estate-planning practices across the country, conventional wisdom is to grant the beneficiary of a trust that isn’t exempt from generation-skipping transfer (GST) tax a testamentary general power of appointment (GPOA) over the trust to minimize transfer taxes at the beneficiary’s death. Let’s explore whether that, in fact, yields the optimal results. 

The current version of the GST tax was introduced about 40 years ago. Its purpose is to avoid the circumvention of the estate tax when property is transferred to or in trust for persons two or more generations below the transferor, known as “skip persons” in the GST rules.¹ Persons who are of the same generation, a generation above or only one generation below the transferor are refe…