Which trust locks in the Generation Skipping Transfer Tax exemption and is not portable?

Which trust locks in the Generation Skipping Transfer Tax exemption and is not portable?

• A. Qdot
• B. Testamentary Trust
• C. Portability
• D. Bypass Trust

Answer: (D)

The idea being tested is how a trust can secure or “lock in” the Generation Skipping Transfer Tax (GSTT) exemption and whether that exemption can be portable. A bypass trust is designed precisely for this: it uses the grantor’s GSTT exemption to fund a trust that benefits future generations (like grandchildren). Because the exemption is allocated to the trust and the trust is irrevocable, that portion of the exemption is set aside and cannot be transferred for use in a surviving spouse’s or another purpose. In other words, it’s not portable—the shield is tied to the trust and its beneficiaries, not available for use elsewhere. QDOT is about deferring estate taxes for transfers to a non-citizen spouse, which isn’t about locking in the GSTT exemption. A testamentary trust is created by a will at death and can be structured in various ways, but the key point about locking in the GSTT exemption and making it non-portable is specifically embodied by a bypass (credit shelter) trust. Portability, by contrast, refers to moving an unused GSTT exemption to the surviving spouse, which would be the opposite concept of non-portable.

The idea being tested is how a trust can secure or “lock in” the Generation Skipping Transfer Tax (GSTT) exemption and whether that exemption can be portable. A bypass trust is designed precisely for this: it uses the grantor’s GSTT exemption to fund a trust that benefits future generations (like grandchildren). Because the exemption is allocated to the trust and the trust is irrevocable, that portion of the exemption is set aside and cannot be transferred for use in a surviving spouse’s or another purpose. In other words, it’s not portable—the shield is tied to the trust and its beneficiaries, not available for use elsewhere.

QDOT is about deferring estate taxes for transfers to a non-citizen spouse, which isn’t about locking in the GSTT exemption. A testamentary trust is created by a will at death and can be structured in various ways, but the key point about locking in the GSTT exemption and making it non-portable is specifically embodied by a bypass (credit shelter) trust. Portability, by contrast, refers to moving an unused GSTT exemption to the surviving spouse, which would be the opposite concept of non-portable.