A Brooklyn family patriarch decides to transfer a highly appreciated multi-family property directly to his three grandchildren. His own children are highly compensated executives. They do not need the rental income, and adding a heavily appreciated building to their balance sheets would subject that asset to severe estate taxes when they eventually pass away. He wants to establish a generation-skipping trust to bypass his children entirely—keeping the property out of their taxable estates. The strategy is sound. Then comes the inevitable question: “If I put the building in this trust, can I take it back if I change my mind?”
The short answer is no. The long answer is a lesson in how federal tax law and state trust statutes interact to protect generational wealth.
The Tax Logic Demanding Permanence
To understand why a generation-skipping trust must be irrevocable, look at the tax it is designed to avoid. The Generation-Skipping Transfer Tax (GSTT) is a federal levy imposed on gifts and bequests to individuals two or more generations below the grantor—typically grandchildren. The IRS imposes this tax at a flat 40 percent rate to prevent wealthy families from avoiding estate taxes by skipping their children.
We can shield assets from this 40 percent hit by allocating your lifetime GST exemption to a properly structured trust. But the IRS requires a strict trade-off. To successfully remove the asset from your taxable estate, the transfer must be complete. You must surrender control.
Permanence.
If a grantor retains the power to revoke the trust, amend its core terms, or pull the assets back into their own name, the IRS views the grantor as still owning the underlying property. Upon their death, the trust assets are dragged right back into their gross estate—entirely defeating the purpose of the strategy. A generation-skipping trust must be drafted as an irrevocable instrument from the moment it is signed and funded.
How New York Defines Irrevocability
In New York, the word “irrevocable” means the grantor alone cannot unilaterally tear up the document. It does not mean the trust is entirely immune to modification, but the hurdles to change it are deliberately high.
Under New York Estates, Powers and Trusts Law (EPTL) § 7-1.9, the creator of an irrevocable trust can amend or revoke it only if they obtain the written consent of all persons beneficially interested in the trust. On paper, this provides a potential exit strategy. In practice—especially regarding generation-skipping trusts—it is often a legal impossibility.
The beneficiaries of a generation-skipping trust are, by definition, the next generations. Often, these beneficiaries are minors. In many cases, the trust includes provisions for unborn grandchildren or great-grandchildren. Minors and unborn descendants lack the legal capacity to consent to the revocation of a trust. While Surrogate’s Court can appoint a guardian ad litem to represent these interests, a guardian is bound by strict fiduciary duty. They will rarely, if ever, consent to the revocation of a trust that strips their wards of future wealth.
Once the ink is dry and the deed to that Brooklyn property is transferred, the grantor cannot simply undo the transaction.
Building Flexibility Into an Unchangeable Structure
Because revocation is practically impossible, we do not rely on it. We rely on deliberate, prudent design. An irrevocable generation-skipping trust does not have to be a rigid trap. A well-drafted trust anticipates the unknown, allowing the administration of the assets to evolve even as the underlying tax structure remains locked in place.
We build adaptability into these trusts through several specific mechanisms:
- Trust Protectors: We can appoint an independent third party—a trust protector—who holds specific, limited powers the grantor cannot hold. A trust protector might be authorized to amend administrative provisions to comply with new tax laws, change the situs of the trust, or remove and replace an underperforming trustee.
- Powers of Appointment: We frequently grant beneficiaries limited powers of appointment once they reach adulthood. This allows a grandchild to direct how the trust assets are distributed among their own descendants upon their death. It gives the family the ability to adjust the flow of wealth based on future realities—such as a descendant requiring special needs planning—without violating the irrevocable nature of the original trust.
- Decanting: New York has highly developed trust decanting statutes. Under EPTL § 10-6.6, an authorized trustee with absolute discretion over principal distributions can pour the assets from an outdated irrevocable trust into a brand-new irrevocable trust with more favorable administrative terms. While decanting cannot return the assets to the grantor, it serves as a powerful tool to modernize a generation-skipping trust drafted decades ago.
Generational wealth requires deliberate stewardship, not temporary fixes. If you are considering how to structure your legacy for your grandchildren, the mechanics of the trust must align with your long-term intentions. You must be prepared to part with the assets permanently. We routinely review existing family structures to determine if a generation-skipping trust is the appropriate vehicle for a specific portfolio. To understand how these rules apply to your family’s assets, schedule a GST exemption analysis with our office.
